Engagement With North Korea: A Viable Alternative

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ENGAGEMENT WITH NORTH KOREA

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ENGAGEMENT WITH NORTH KOREA A Viable Alternative

Edited by

SUNG CHULL KIM AND

DAVID C. KANG

The publication of this work was supported by the Academy of Korean Studies of the Republic of Korea (AKS-2008-CD-4003).

The Korea Foundation has provided financial assistance for the undertaking of this publication project. Published by

State University of New York Press, Albany © 2009 State University of New York All rights reserved Printed in the United States of America No part of this book may be used or reproduced in any manner whatsoever without written permission. No part of this book may be stored in a retrieval system or transmitted in any form or by any means including electronic, electrostatic, magnetic tape, mechanical, photocopying, recording, or otherwise without the prior permission in writing of the publisher. For information, contact State University of New York Press, Albany, NY www.sunypress.edu Production, Eileen Meehan Marketing, Anne M. Valentine Library of Congress Cataloging-in-Publication Data Engagement with North Korea : a viable alternative / edited by Sung Chull Kim and David C. Kang. p. cm. Includes bibliographical references and index. ISBN 978-1-4384-2779-9 (hardcover) 1. Korea (North)—Foreign relations. 2. Nuclear nonproliferation—Korea (North) I. Kim, Sung Chull, 1956– II. Kang, David C. (David Chan-oong), 1965– JZ1748.E64 2009 327.5193—dc22

2008051368 10 9 8 7 6 5 4 3 2 1

CONTENTS

List of Figures and Tables Acknowledgments ONE

Introduction: Engagement as a Viable Alternative to Coercion Sung Chull Kim and David C. Kang

vii ix

1

PART I INTERNATIONAL DIMENSION TWO

Waiting to Reap the Final Harvest: U.S. Engagement Policy to Denuclearize North Korea Youngshik D. Bong

23

THREE

Looking East: China’s Policy toward the Korean Peninsula 47 Fei-Ling Wang

FOUR

Japan’s North Korea Policy: The Dilemma of Coercion Jung Ho Bae and Sung Chull Kim

73

FIVE

Russia and North Korea: The Dilemma of Engagement Leszek Buszynski

99

SIX

The Political Economy of North Korea’s External Economic Relations Stephan Haggard and Marcus Noland

119

PART II INTER-KOREAN DIMENSION SEVEN

The State-Business Coalition for South Korea’s Engagement with North Korea Sung Chull Kim

147

vi EIGHT

NINE

TEN

ELEVEN

CONTENTS Business Advances to North Korea as Outward Foreign Direct Investment Eun Mee Kim and Yooyeon Noh

173

From Charity to Partnership: South Korean NGO Engagement with North Korea Edward P. Reed

199

North Korea’s South Korea Policy: Tactical Change, Strategic Consistency Charles K. Armstrong

225

Conclusion: Engagement in 2007 and Beyond David C. Kang

245

Editors and Contributors

255

Index

261

PREFACE

vii

LIST OF FIGURES AND TABLES

Figure 6.1 Observed Commercial Merchandise Trade

121

Figure 6.2 Total Current Account Credits and Debits

133

Figure 6.3 North Korean Current Account Balance

134

Figure 6.4 North Korea Balance of Payments Statistical Discrepancy 135 Figure 6.5 Ratio of Balance of Payments Transactions to Licit Merchandise Exports

137

Figure 6.6 South Korean and Chinese Official Support

138

Table 1.1 Each Country’s Strategy of Engagement with North Korea

10

Table 4.1 Main Agreement Points at the 2002 Summit

81

Table 4.2 Different Positions at the Working Group Meeting in Hanoi, March 2007

92

Table 6.1 Partner Country Share of North Korean Commercial Trade

122

Table 6.2 Total Humanitarian Assistance, by Donor Organization

128

Table 6.3 Foreign Direct Investment in North Korea

130

Table 6.4 North-South Noncommercial Trade: South Korean Perspective

131

Table 8.1 Worldwide Distribution of South Korea’s OFDI

176

Table 8.2 Sectoral Distribution of South Korea’s OFDI, 2005

177

Table 8.3 Why South Korean Firms Choose to Invest Abroad

177

Table 8.4 Inter-Korean Trade and Commission-based Processing Trade, 1989–2006

182

Table 8.5 Overall Statistics of Inter-Korean Economic Transactions

185

Table 8.6 The Three Stages of the Plans for the Kaesong Industrial Complex

190

vii

viii

FIGURES CONTENTS AND TABLES

Table 8.7 Production in the Kaesong Industrial Complex

191

Table 8.8 Comparative Factor Prices in Kaesong, China, and South Korea

193

Table 9.1 Typology of Humanitarian NGOs Providing Assistance to North Korea

204

Table 9.2 South Korean NGO Matching Fund Allocations, 2000–2006.11

205

Table 9.3 South Korean Governmental and NGO Aid to North Korea, 1995–2006

208

PREFACE

ix

ACKNOWLEDGMENTS

This volume is the product of two conferences: one at the Hiroshima Peace Institute on December 11–12, 2006, and the other at the Center for Korean Research at Columbia University on June 8–9, 2007. We editors particularly appreciate the total cooperation of all contributors, especially for their cooperation on writing the papers and revising them at least three times. Their conscientious scholarship and diverse expertise highlighted the complex engagement with North Korea in the context of the interface between domestic politics, bilateral relations, and multilateral relations. Their contributions are not limited to exploring dilemmas of engagement, caused by divergent national interests between related countries, but extend to examining the ways and means for achieving progress in the positive inducement of North Korean cooperation. We editors should note that Stephen Haggard was not only a chapter contributor but also a critical reader of the introductory chapter and that Charles Armstrong kindly facilitated the New York conference, failing which it would otherwise have been difficult to invite certain scholars from North America. Along with the paper contributors, the following scholars made the debates at the conferences fruitful in one way or another: Peter H. Gries, Daniel Pinkston, Jong Chul Park, Suk Lee, Hiroshi Nakanishi, Chien-min Chao, Scott Snyder, Hyeong Jung Park, Joel Wit, and Arman Grigorian. Furthermore, we would like to note the project’s intellectual debt to Samuel S. Kim, Wada Haruki, Tun-jen Cheng, Edward Friedman, Kenneth Quinones, James Clay Moltz, Hazel Smith, Motofumi Asai, Haru Fukui, and finally but not least Byoung Yong Lee. All chapter contributors, as well as editors, benefited from two anonymous reviewers’ invaluable suggestions and comments for the improvement of the volume as a whole. We are thankful to many people who have been involved in the preparation of the conferences and in the production of this volume: the project assistant Jun Kajihama did an admirable job in the administration and coordination of the conferences; Michiko Yoshimoto, Yuko Otsuki, and Janet Jun kindly assisted the conferences in Hiroshima and New York respectively; Eileen Meehan and Michael Rinella at SUNY Press provided excellent editorial guidance. Finally, we acknowledge with deep gratitude the generous funding from the City of Hiroshima to host the two conferences that were held under the auspices of the Hiroshima Peace Institute. ix

x

ACKNOWLEDGMENTS CONTENTS

The publication of this work was supported by the Academy of Korean Studies of the Republic of Korea (AKS-2008-CD-4003).

INTRODUCTION

1

ONE

INTRODUCTION Engagement as a Viable Alternative to Coercion Sung Chull Kim and David C. Kang

Tension between North Korea and the outside world has drastically increased over the past few years. In 2006, North Korea tested an intercontinental ballistic missile and then a nuclear device; in response, the United Nations Security Council adopted two resolutions that sanctioned North Korea for its destabilizing behavior. However, the member countries of the Six-Party Talks—North Korea, South Korea, the United States, China, Russia, and Japan—reached an agreement in February 2007 about an initial step toward the denuclearization of North Korea. The agreement aimed at the shutdown and disablement of North Korea’s nuclear facilities and the complete declaration of all its nuclear programs, in exchange for an arrangement of heavy-oil aid. The actual shutdown in July and the disablement process that started in November are regarded as the first accomplishments of the five countries’ concerted engagement with North Korea for the common goal of dismantling this isolated country’s nuclear program. In a similar vein, North Korea declared its nuclear program in June 2008, and the five engaging countries, at the beginning, responded to this declaration positively. But how to continue to make progress—centered on, first, the verification of North Korea’s nuclear programs and then the dismantlement of weapons-grade materials and the weapons themselves by North Korea—has remained a big question, and the process will undergo ups and downs. Differences among the five states with regard to their policy toward North Korea, and the mutual distrust between North Korea and the United States and 1

2

ENGAGEMENT WITH NORTH KOREA

Japan, still work as an important distracting factor in the overall denuclearization process. Furthermore, the progress differs from the completion of the process. For the completion, there needs to be a paralleled substantive change in international relations centered on the Korean Peninsula, particularly between the United States and North Korea, as well as between Japan and North Korea. Inasmuch as the issue of the denuclearization of North Korea is complicated and unpredictable, there has been extensive controversy among policymakers and academics over the wisdom and legitimacy of engagement as a strategy in dealing with the issue. This disagreement over engagement can be traced back to differing assessments of the Clinton administration’s deal with Pyongyang in 1994, also known as the Geneva Agreed Framework. This deal was to end the first North Korean nuclear crisis by stipulating the provision of two light-water reactors to North Korea in return for freezing the country’s nuclear facilities. But the Republican-controlled U.S. Congress called the Agreed Framework “appeasement.”1 For more than a decade, critics and defenders of engagement debated the merits and the drawbacks of proposed policies toward North Korea.2 After North Korea’s nuclear test in October 2006, critics’ denunciations of engagement have become harsher. For example, Aaron Friedberg, former deputy national security advisor to Vice President Dick Cheney, characterized engagement with North Korea as “fanciful,” saying that “it is precisely the absence of sufficient pressure that has gotten us where we are today.”3 Critics also targeted the Bush administration’s abrupt policy shift from punishment to engagement after the nuclear test; John R. Bolton, former ambassador to the United Nations, accused the administration of having done a “complete U-turn” on the North Korean nuclear issue.4 On the other hand, there is a large group of scholars and analysts who have argued that engagement, as a strategic alternative to coercion, might resolve the North Korean nuclear issue. Leon Sigal advocated the position that “promises, not just threats” constitute the means to induce North Korea’s cooperation, and he assessed the Agreed Framework as an exemplary success of the engagement strategy.5 Joel Wit, Daniel Poneman, and Robert Gallucci stressed the significance of negotiations with an adversary, even if a deal should not be based on trust.6 Victor Cha, targeting hawkish policymaking audiences, maintained that engagement with a rogue state, indeed, carries with it a significant threat of future punishment in case the state violates any engagement-based promise, and Cha backed this assertion up by saying that “carrots today are the most effective sticks tomorrow.”7 Victor Cha and David Kang presented a comprehensive debate on engagement with North Korea. Even though they arrived at different prescriptions for how best to denuclearize the peninsula (Kang’s endorsement of greater open engagement versus Cha’s more hawkish approach), they commonly explored the rationale of engagement with North Korea as

INTRODUCTION

3

a part of America’s long-term strategy.8 Stressing the long-term ineffectiveness and irreversible damage of sanctions, Ruediger Frank recommended assistance, that is, incentives, for an alternative way of changing the operating environment for North Korea.9 Following the logic of constructivism, Son Key-young advocated the legitimacy of South Korea’s Sunshine policy toward the North, arguing that “comprehensive engagement was premised on the belief that identity shifts vis-à-vis an enemy state are possible . . . and that engagement is an integration initiative.”10 Especially after the eruption of the second nuclear crisis in 2002, debates about multilateral engagement have become more intense. James Laney and Jason Shaplen asserted that while not rewarding North Korea for its misdeeds, relevant countries should “guarantee the security of the entire Korean Peninsula.”11 Paying attention to the North’s economic atrophy, Michael O’Hanlon and Mike Mochizuki argued that a policy alternative, for the relevant countries, should be intended to “reduce the core threat that has existed in Korea for half a century” and “offer some hope that economic reform in the DPRK might begin to succeed.”12 James Moltz and Kenneth Quinones noted that, through multilateral engagement, the United States might gain political, military, and economic advantages.13 With the inauguration of President Barack Obama in January 2009, the logic of multilateral engagement seems to have gained stronger momentum than ever before. Both the debate and the controversy over the wisdom and legitimacy of engagement will continue until not only North Korean nuclear facilities undergo irreversible dismantling but also a consensus emerges regarding the dismantlement per se. Despite the extensive controversy, however, there has been little sustained effort either to explore the theoretical logic of engagement or to assess whether or not—and if so in what ways—engagement has worked on the Korean Peninsula. The question of engagement is a vital issue for both scholars and policymakers. How the world deals with North Korea will have ramifications for both regional and global stability, and it is thus all the more important that a policy be adopted and conducted from a sound theoretical and empirical basis. The purpose of this volume is to examine the nature and the effectiveness of the engagement strategy insofar as the neighbor states (and different actors in South Korea) have applied the strategy to North Korea. This volume deals with denuclearization as a critical subject but not as the only critical subject. Engagement with North Korea involves negotiations and economic relations between relevant states; in particular, the economic issue has mattered and will continue to matter in the denuclearization process. Therefore, this volume deals with political implications of the economic issue as well as of North Korea’s nuclear issue per se.

4

ENGAGEMENT WITH NORTH KOREA

This introductory chapter discusses both the theoretical basis and the practical questions related to the five states’ engagement with North Korea, and in connection with this discussion, the following chapters in this volume address two overarching questions. First, what are the goals, instruments, and logic of engagement with North Korea? Second, why has engagement succeeded, or why has it shown limitations, on the Korean Peninsula?

ENGAGEMENT AND COERCION IN INTERNATIONAL RELATIONS In exploring ways to deal with a state’s undesirable behavior, the international relations literature has focused on coercive strategies, primarily on either deterrence or compellence.14 Coercive strategies in the form of deterrence or compellence have received extensive attention, especially during the cold war between the United States and the Soviet Union.15 Rewards and punishments (carrots and sticks) are tools of both social interaction and foreign policy. However, while many of the other social sciences such as sociology and psychology pay equal attention to both rewards and punishments, the study of international relations has tended to focus on coercion-based punishments. In coercive strategies, deterrence functions to persuade an adversary not to take a certain action by demonstrating resolve and capabilities, whereas compellence uses threats and other punitive actions to persuade an adversary to undo an action that the adversary has taken or to change course.16 That international relations scholars place a substantively greater focus on coercion than inducement is somewhat surprising, because both coercion and inducement operate within a cost-benefit calculus and on the assumption of rational action and, theoretically, because both deserve equal attention. Most theories regarding coercive strategies rest on the presumption that a state’s preferences and identities are fixed and conclude that only punishment can correct an adversary’s destabilizing behavior. Insofar as a state’s preferences and identities are fixed, an adversary will refrain from a policy undesirable to other states only if the other states increase the costs that the adversary must endure to pursue the policy. According to proponents of the coercive strategies, deterrence and compellence, whether in the form of military moves or economic sanctions, raise the costs of the offending action and, in turn, modify a state’s behavior.17 Although there is logic behind coercive strategies, particularly economic sanctions, there is just as much skepticism in the literature about whether or not these strategies are effective.18 Indeed, even targeted economic sanctions are rarely strong enough to modify an adversary’s desta-

INTRODUCTION

5

bilizing behavior; the sanctions may actually reinforce that behavior by strengthening the adversary’s existing preferences and identities. External pressure often strengthens the links between the regime and its citizens by offering a convenient external target for anger at the punishment received. Miroslav Nincic notes that “negative sanctions should undermine domestic support for a regime, but the opposite can occur if they produce a rally-round-the-flag and if, in the context of foreign besiegement, the regime’s domestic opponents can be linked to hostile foreigners.”19 In this regard, economic sanctions may reinforce the adversary regime’s relevant preferences and identities—even while they prove incapable of correcting the destabilizing behavior. In contrast to the coercive strategies of deterrence and compellence, engagement is a strategy whose function is to defuse a potentially dangerous situation not through threats but through incentives. The distinguishing feature of engagement is the idea that positive inducements and the extension of benefits, rather than the promise of harm or the imposition of current costs, can either produce a change in the adversary’s actions or transform the target state by creating new interests in the long run. Within this broad approach to engagement are two variants: conditional engagement and unconditional engagement.20 First, unconditional engagement uses available incentives whose cumulative effects ultimately transform the target state’s policy preferences as well as its behavior. As Richard N. Haass and Meghan L. O’Sullivan note, unconditional engagement proceeds “without explicit agreement” that a reciprocal act will follow.21 Because it is necessarily a long-term strategy, unconditional engagement is politically vulnerable in the sense that it may not be accompanied in the short run by concessions. Perhaps the most widely studied aspects of this unconditional type of engagement are found in the literature on economic interdependence, which explores ways in which expanding economic ties between states tends to reduce adversarial relations.22 An increase in the benefits that the states might receive from crafting good economic relations can alter their overall policy objectives. The states may expect that, in the long run, economic interdependence will change the target state’s policy and reduce the possibility of military conflict.23 That is, economic interdependence may produce different objectives with respect to diplomacy: economic ties matter more than security. The discussion about economic interdependence has been expanded by addressing the possible relationship between the interdependence and a shift in the target state’s domestic coalition. Paying special attention to the grand strategy of national survival, Etel Solingen notes that a domestic coalition, composed particularly of outward-looking, internationalizing segments of the society, pursues domestic economic growth, regional cooperation and

6

ENGAGEMENT WITH NORTH KOREA

stability, and dependable access to global markets, capital, and technology.24 The internationalizing domestic coalition’s preference for openness and international stability is related “not merely to material interests but also to cultures, identities, and values.”25 A notable point is that, as Solingen notes, a domestic coalition with an outward-looking, internationalizing grand strategy may emerge not only in democracies but also in authoritarian regimes.26 Thus, the logic of engagement with a certain target state, addressing that state’s outward-looking grand strategy, lies in facilitating the structure of the positive inducement of improved international relations and in strengthening the target state’s domestic forces who hold internationalizing identities and values. Engagement aims also to sever the links among inward-looking backlash forces in the target state and to prevent a logrolling effect or a rally-round-the-flag effect among them. Engagement seeks to weaken the inward-looking forces in the target state by creating alternative incentives for the outward-looking forces and by encouraging the emergence of a ruling coalition that opposes confrontation. If successful, engagement as a strategy can be accompanied by changes in the target state’s preferences and identities as well as the state’s behavior. Unconditional engagement may also involve unilateral concessions designed to create new identities and values in international relations. An exemplary case concerns President of the Soviet Union Mikhail Gorbachev’s unilateral offer to U.S. Secretary of State James Baker in May 1989 in which he proposed that his decaying communist country withdraw tactical nuclear weapons from Eastern Europe. Gorbachev’s offer inspired the Malta Conference that December, when he and George H. W. Bush moved forward to an unprecedented agreement on nuclear arms control.27 Unconditional engagement may also involve purely humanitarian aid, as when a state intervenes because of a moral obligation to help citizens. The engaging state may expect changes over time in the target state’s public perception of the outside world. Humanitarian aid is usually accompanied by direct or indirect contacts, which induce greater positive perceptions among the public regarding the engaging state. Second, conditional engagement is accompanied by specific conditions and corresponding incentives that may affect the target state’s calculations about cost and benefit. One of the most famous examples is Robert Axelrod’s solution to “the prisoner’s dilemma.” He found that a tit-for-tat strategy of cooperative and noncooperative moves links the “shadow of the future” to current behavior and consequently best promotes stable cooperation between adversaries.28 Conditional engagement uses give-and-take practices, and thus it necessarily involves negotiation. As Leszek Buszynski notes in this volume, staged engagement is a model of engagement with negotiation. On the basis of both the engaging state’s and the target state’s respective imple-

INTRODUCTION

7

mentation of agreed points, both states attain a higher stage on the path to an ultimate goal that they have already identified. Staged engagement involves a sequence wherein the engaging state would offer incentives in phases in response to the target state’s cooperative acts. The February 13 agreement in 2007 at the Six-Party Talks has as its framework this type of staged engagement: the provision of fifty thousand tons of heavy-oil aid in response to the shutdown of nuclear facilities; the sending of nine hundred fifty thousand tons of heavy-oil aid as compensation for declaration of all nuclear programs and disablement of the facilities. The “grand deal” is another model of conditional engagement; with an exchange of packages arranged through a long negotiation process, relevant partners may open a new chapter in their relationship. The Paris Peace Accords in 1973, reached after three-year-long talks seeking a cease-fire during the Vietnam War, is a historic example of a grand deal—a deal that broke down with North Vietnam’s military occupation of the South.29 In sum, there exists a solid theoretical rationale for exploring engagement as an alternative to punishment or coercion in dealing with an adversary’s destabilizing behavior. Engagement as a strategy seems a practical and moral alternative to coercion, particularly in the post–cold war era.

HAS ENGAGEMENT WORKED? Regarding the Korean Peninsula, the sheer complexity of the issues, the number of states (and various actors, in the South Korean case) with direct interests in the outcome, and the differing nature of those interests have made crafting any policy toward North Korea prohibitively difficult. Although the shutdown of North Korean nuclear facilities has continued since July 2007, the question remains as to how momentum might be maintained for further progress in the denuclearization of the Korean Peninsula. Skepticism remains as to how much North Korea will actually honor the Six-Party Talks’ agreements on its denuclearization. Also, an engagement strategy raises several practical issues with regard to the effectiveness of conditional engagement with North Korea; among them are North Korea’s response, the problem of coordination among engaging states, and the domestic politics of each engaging state. North Korea as Dynamic Actor The heart of concern over an engagement strategy is whether or not the Six-Party Talks and other forms of engagement (for instance, Chinese and South Korean economic engagement) can effectively induce North Korea’s cooperation. Changes in North Korea’s behavior or preferences and identity might start with the country’s cost-benefit calculations and perceptions of

8

ENGAGEMENT WITH NORTH KOREA

neighbor states. There are three notable problems. First, there is a huge gap between the five states’ nuclear disarmament demands and North Korea’s calculations regarding this issue. The then Japanese delegate at the Six-Party Talks, Sasae Kenichiro, aptly noted this point by declaring, “There are differences of opinion among the five nations, but there are greater differences between the five nations and North Korea.”30 North Korea has been a dynamic actor that has created a new gap with an ensuing negotiation structure that favors its own goals.31 There is ample evidence of North Korea’s approach: the two nuclear crises in 1993 and 2002, the missile launches in 1998 and 2006, and the nuclear test in 2006 have functioned to coerce Washington into having direct talks with Pyongyang. The point is to convince North Korea that by snowballing its demands and delaying the requested actions, it will fail to act in its best national interests; that is, to convince North Korea that the sooner it denuclearizes, the sooner it will receive rewards. Second, North Korea, never a passive actor, takes advantage of the five engaging states’ strategies, which differ from one state to the next. The multilateral engagement produces a triple-level diplomacy—multilateral talks, bilateral relations, and domestic politics; this situation complicates interactions among the states. In particular, there is a certain degree of tension between the Six-Party Talks (the multilateral level) and each of the five states’ relations with North Korea (the bilateral level) precisely because of the different interests among the states with regard to the North Korea issue, as shall be discussed later. North Korea is naturally tempted to use this situation to curb the binding power of any agreement achieved at the multilateral talks or, more ambitiously, to drive wedges between the five states. Therefore, coordination between the five states is an important task for the success of engagement in the multilateral context. Third, there is a close linkage between North Korea’s nuclear diplomacy and its national identity. Anti-imperialism, that is, anti-Americanism, has long been one pillar of North Korea’s national identity. Devastated by American aerial attacks during the Korean War and by economic sanctions afterward, North Korea considers itself a victim of imperialism. The image of a “nuclear state” targeting the United States permeates the consciousness of North Koreans, a people already familiar with the slogans of self-defense sustained by “military-first politics.”32 Therefore, the present U.S. conditional engagement has limitations regarding its ability to fully induce a positive North Korean response to the nuclear issue. The Six-Party Talks with a staged format are a crucial instrument of conditional engagement but not the only crucial instrument. The United States must act to lessen the existing North Korean animosity. To begin with, Washington needs to establish a negotiating foundation in which the peninsula may distance itself from the legacy of the Korean War, so that Washington and Pyong-

INTRODUCTION

9

yang eventually normalize relations with each other unencumbered by the past six decades. Engagement in a Multilateral Context The nature of an engagement strategy depends partly on whether the engagement is bilateral or multilateral. An agreement reached by multilateral engagement might be more effective than an agreement reached through merely bilateral relations, although this assertion presumes that multilateral states are all in agreement. One key issue worth exploring is whether or not multilateral negotiations introduce coordination problems that undermine the effectiveness of engagement. Thus, just as a lack of coordination can undercut sanctions, which is the standard finding, so too can this lack undercut engagement. The five states, anchored by the Six-Party Talks, have had a common goal, the nuclear disarmament of North Korea. However, this goal is not the first priority of each state; each state has its own additional—sometimes more important—goals for engagement with North Korea. Accordingly, the type and the logic of each state’s engagement strategy differ from those of every other state (see Table 1.1). In bilateral relations with North Korea, there are specific and important differences within these two types of engagement: conditional and unconditional. Japan takes a mostly coercive approach, and the United States maintains conditional engagement; China and Russia (and South Korea of the Roh administration) maintain unconditional engagement. The point is that all of these different types of engagement are in tension with one another. The five states’ effort to remain in concert as they try to end North Korea’s nuclear ambitions constitutes a challenging issue. The most notable difference existed between South Korea of the Roh administration on the one hand and Japan and the United States on the other. Considering the nuclear issue a troubling obstacle on the path toward the construction of an economic community on the peninsula, the Roh administration in South Korea tried to extend aid and economic projects in North Korea. Indeed, the South Korean government intended to change the identity of North Korea in the long run by way of inter-Korean dependence, namely, the formation of a “South-North Economic Community.”33 As inter-Korean relations developed, the emotional proximity or distance between the United States, North Korea, and South Korea changed. If one may use Theodore Caplow’s two-against-one formula,34 the triangular relations shifted from “against North Korea” to “against the United States.” This situation paralleled a weakened perception among South Koreans about the North Korean nuclear threat.35

• Nonproliferation, • Denuclearization

• Maintenance of influence on the peninsula, • Economic growth of the Russian Far East, • Denuclearization • Avoiding economic collapse in North Korea, • Maintenance of influence on the peninsula, • Denuclearization [1998–2007] • Changing North Korean identity • Avoiding North Korean collapse • Denuclearization [2008–present] • Denuclearization, • Reform and opening-up of North Korea

U.S.

Russia

South Korea

China

• Resolution to abduction issue, • Denuclearization

Japan

Goals

[1998–2007] • Unconditional [2008–present] • Conditional

• Unconditional

• Unconditional

[2000–2006] • None [2007–present] • Conditional

• Conditional

Type of Engagement

• High

• Low

• Low

• Low

• High

Domestic Relevance

Table 1.1 Each Country’s Strategy of Engagement with North Korea

• Persuasion and pressure, • Intervening between the U.S. and North Korea [1998–2007] • Interdependence [2008–present] • Preconditioning of denuclearization to economic assistance

• Persuasion, • Arbitration in differences

• Negotiation, • Disciplining

• Pressure, • Dialogue

Logic

[1998–2007] • Economic projects, • Humanitarian assistance, • Six-Party Talks [2008–present] • Consultation with U.S., • Six-Party Talks, • Economic projects, • Humanitarian assistance

• Economic aid and trade, • Six-Party Talks

• Six-Party Talks

• Sanctions, • Six-Party Talks, • Potential normalization if Japanese goals are met • Six-Party Talks, • Sanctions, • Normalization and lift of sanctions if U.S. goals are met

Instruments

10

ENGAGEMENT WITH NORTH KOREA

INTRODUCTION

11

The South Korean approach was unacceptable to the United States, which pursued a resolution to the North Korean nuclear issue in the contexts of both nonproliferation and the War on Terror. The United States called the North a member of the axis of evil in 2002 and invaded Iraq in 2003, arguably undermining South Korea’s engagement effort. The U.S. punitive approach continued until the beginning of 2007, when it lifted sanctions against North Korean accounts at Banco Delta Asia in Macau. In the process of imposing the sanctions and then lifting them, the United States demonstrated that it grasped the financial flow in relation to North Korea. Meanwhile, Japan consistently favored sanctions over engagement, withholding any offer of aid until the abduction issue is resolved. In response to North Korea’s missile launches in July 2006 and the nuclear test in October of the same year, Japan, along with the United States, initiated two strong UN Security Council Resolutions (Resolution 1695 on July 15 and Resolution 1718 on October 14). As many scholars have noted, the success of the five states’ engagement with North Korea depends on the coordination of those states’ strategies.36 Just as no unilateral coercive measure can either discipline North Korea or induce a positive response, no appeasement measure at the bilateral level can enhance the overall utility of engagement. The five states should coordinate their differences at the multilateral level. The coordination involves the confirmation of common goals and incentives that would link the five different sets of bilateral relations with North Korea to the multilateral engagement centered on the Six-Party Talks. Common goals for North Korea should include the following: Nuclear disarmament and nonproliferation; Neither unilateral use nor unilateral testing of weapons of mass destruction; Commercial practices in accordance with international norms and practices; Cooperative resolutions to outstanding bilateral issues, especially in U.S.-DPRK and Japan-DPRK relations. Common incentives to North Korea should include the following: A security guarantee to the DPRK; Facilitation of the normalization of U.S.-DPRK and Japan-DPRK relations; Facilitation of the integration of the DPRK into the international economy; Humanitarian aid, educational or training assistance, and energy assistance.

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ENGAGEMENT WITH NORTH KOREA

While most of these elements already appeared in the Joint Statement of the Six-Party Talks issued in September 2005, the listed elements are not optional entries on a menu but necessary entries, both for North Korea and among the five states. Of the elements from the list, the third element stipulates that commercial practices in accordance with international norms and practices constitute a common objective both in each of the five states’ bilateral relations with the North and in the multilateral context. For example, South Korea’s economic engagement with North Korea should facilitate the North’s accommodation of international norms and practices, a situation that would lessen American worries that the South would be simply appeasing the North. On the other hand, the five states have to deepen discussions about the collective provision of incentives. For instance, North Korea’s normalization of relations with the United States and Japan comprises not merely two bilateral affairs but affairs of other states, as well. Both China and South Korea should assist Japan-DPRK normalization talks; this cooperation would, in turn, raise the Six-Party Talks to a higher level. In the same vein, the security guarantee is not a bilateral issue between the United States and North Korea but an issue for peace on the Korean Peninsula as a whole. If the United States pursued a military option against the North, then the South, for fear of war, could not become a genuine partner in the multilateral engagement and would have to pursue its own strategy of survival—for instance, the South might adopt a unilateral appeasement measure in relation to the North rather than remain faithful to the principled approach. The Domestic Politics of Engagement Under what conditions will engagement be sustainable in the domestic politics of each state? Each state’s engagement with North Korea constitutes a double-edged policy. Domestic politics in South Korea and Japan, for example, are more intense than in other states. In South Korea, the Kim administration and Roh administration undertook an unconditional engagement strategy to buy peace through changes in North Korea and then through inter-Korean dependence, whereas the then opposition party denounced the government’s leniency toward North Korea’s unprincipled practices, not to mention the missile launches and the nuclear test in 2006. In response to domestic pressure and criticism, the Roh government had to pay special attention to the promotion of the government policy; also, it tried to demonstrate the policy’s symbolic outcomes, such as trade volume increase, investment projects, and the railway connections crossing the inter-Korean border. South Korea’s polarized domestic politics and the government’s obsession with symbolic achievement undercut the effectiveness of the policy, whose purpose was to bring about the long-run transfor-

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mation of North Korea’s identity as well as its behavior. The Lee Myung Bak administration, newly launched in 2008, pursues conditional engagement with North Korea, reversing the previous two administrations’ policy, but the conditional engagement is criticized by the ruling-turned-opposition party. It is fair to note that whoever takes control of power, the North Korea policy in Seoul remains a politically divisive doubled-edged policy. In Japan, the domestically sensitive abduction issue has eclipsed the denuclearization issue. North Korean agents conducted abductions of Japanese citizens during the 1970s and the 1980s, and North Korean authorities’ admission of the abductions at the 2002 summit between Koizumi Junichiro and Kim Jong Il only fueled Japanese public anger. The admission exacerbated the Japanese people’s feelings of disgust that had arisen since the North Korean missile launch over Japanese territory in 1998. It is said that the domestic atmosphere in Japan after the North Korean admission of the abductions was similar to the sentiment of Americans after the September 11 terrorist attacks.37 Besieged by the abduction issue, the Japanese government has maintained the conditional position of “no progress in the abduction issue, no aid to North Korea,” reflecting exactly the standpoint of abductees’ families.38 This firm position seems unlikely to change significantly in the immediate future, because the forces in Japan that promote the bashing of North Korea have been strengthened since the end of the 1990s.39 In the same vein, the Japanese government did not welcome North Korea’s shutdown of nuclear facilities in July 2007 and, indeed, simply called it “no more than the first step.”40 Domestic politics are also tied up with credibility issues that arise in the course of conditional, tit-for-tat engagement. The North may doubt whether or not the American government, regardless of a new presidency, will follow through on its commitments. This is why the North is so concerned about presidential elections in the United States. In this regard, domestic politics is closely related to the consistency or inconsistency of engagement and to engagement’s overall effect.41 For the management of domestic politics to be successful, each government has to assign an exit point to the pending issue at hand. For instance, the Japanese government must define a minimally acceptable resolution to the abduction issue—that is, the minimal exit point for undoing Japan’s coercive measures against North Korea, whether this point is North Korea’s renewal of investigations into the abductions or its punishment of the abductions’ organizers. The important question is whether or not the Japanese government is willing to confront the media-framed trauma and can convince the public to reasonably separate its negative views of North Korea from its own foreign policy toward North Korea.42 In the South Korean case, the Lee administration has to lower tension in domestic politics with regard to the government’s North Korea policy; it needs to compromise with the

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present opposition party in order to avoid political and social polarization, which inevitably undercuts the effect of engagement.

THE FINDINGS OF THIS BOOK From a number of diverse perspectives, the chapters assembled for this volume examine North Korea–oriented engagement and North Korea’s responses, both at the international level and at the inter-Korean level. Core findings from this volume are as follows: (1) For each state, engagement in general is a viable alternative to coercive strategies for inducing North Korean cooperation. Inasmuch as engagement aims at creating an unprecedented value, it has undergone ups and downs. The key point is to narrow, through confirming common goals and incentives, the gaps between North Korea and the five states and between differing objectives and logic of the five states. (2) In order to achieve complete success of engagement in the multilateral context, relevant actors have to increase the degree of coordination among their diverse strategies. Engagement with North Korea is triple-edged, encompassing domestic politics concerning DPRK, bilateral relations with DPRK, and multilateral relations in the Six-Party Talks. There always exists tension between the three levels; the most important question for sustaining progress at the multilateral talks is how to prevent the various strategies from undercutting the positive effect of engagement. (3) The Six-Party Talks with a staged format is a crucial instrument of conditional engagement but not the only crucial instrument. The logic of quid pro quo in the current format has worked not based on trust but calculation; it will not be sufficient to convince North Korea that full cooperation for denuclearization would serve the country’s best national interest. In view of that there is a close linkage between North Korea’s nuclear diplomacy and its national identity, particularly with respect to anti-Americanism, the United States needs to construct foundations that will help the peninsula distance itself from the legacy of the Korean War and facilitate the normalization of relations between the two countries. The authors of the chapters in Part One examine four neighbor states’ engagement with North Korea and dilemmas that each confronts. To resolve the North Korean nuclear crisis, the role of the U.S. government is crucial. The government’s policy shift, as exemplified by its decision to lift sanctions on the North Korean accounts at Banco Delta Asia and to remove North Korea from the list of State Sponsors of Terrorism, had a significant effect on multilateral engagement with North Korea. But the U.S. engagement, as Youngshik Bong notes in his chapter, has to be extended in scope. The U.S. government has to pave the way for a resolution to longstanding bilateral concerns that have plagued North Korea since the Korean War: economic sanctions, diplomatic isolation, and fear of insecurity. China has been pleased to play the role of host for the Six-Party Talks, hoping for both

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denuclearization of North Korea and the maintenance of stability through continuation of the status quo on the Korean Peninsula. In adopting this approach, China proves that there are real shared strategic interests between Beijing and Washington regarding the peninsula and beyond. Fei-Ling Wang cautions here that China, as a rising power, deliberates on the North Korean issue in the context of broader global considerations. If the complications of Sino-American relations and of diverging Sino-Japanese interests develop further, then China is likely to alter its strategic calculations about the Korean Peninsula. In this type of scenario, China would not only prop up the existing regime in North Korea but also readily accept nuclear residuals in North Korea. Jung Ho Bae and Sung Chull Kim’s chapter on Japan shows that politicization of the abduction issue and its ensuing phenomenon, bashing of North Korea, in the past decade has limited Tokyo’s choices with regard to policy toward Pyongyang. If Japan continues to follow a coercive strategy and consider resolution of the abduction issue the precondition to other bilateral issues, then it cannot achieve that objective and will simply remain a negotiation breaker in the Six-Party Talks mechanism. In a similar vein, the motivations and the objectives that characterize Russia as it engages with North Korea constrain Russia’s ability to persuade Pyongyang to dismantle its nuclear program. Leszek Buszynski points out that Russia’s engagement under former president Putin, and his successor President Dmitri Medvedev, has functioned for two purposes: to maintain Russia’s influence on the Korean Peninsula in both the North and the South; and to contain the U.S. use of the military option. This type of engagement sustains North Korea, raising skepticism about Russia’s capacity to help induce Pyongyang’s complete dismantlement of the nuclear program. Stephan Haggard and Marcus Noland illustrate changes in North Korea’s external economic relations and underscore the need for relevant states to extend “commercial” components in economic transactions with North Korea. North Korea accommodates Chinese and South Korean expansion of both trade and investment; however, North Korea seems to cautiously avoid dependence on South Korea while taking advantage of the South’s humanitarian aid and noncommercial transactions. This finding warns against a moral hazard operating in the politicized nature of the South’s economic engagement with the North. The authors of the chapters in Part Two explore various aspects of inter-Korean relations: both the South Korean engagement and the North Korean responses. South Korean engagement has wedded itself to the logic of buying peace; the partners in the engagement are the government, businesses, and NGOs. Despite progress in extending trade and investment to the North, the South Korean engagement has experienced difficulty in instituting economically interdependent relations between the two Koreas. Sung Chull Kim notes that both the government-business collusion at the initial

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stage of engagement and the following domestic political division in the South—not to mention the North Korean nuclear crisis—have degraded the effectiveness of the engagement strategy. The government has come to adhere to visible and symbolic short-term outcomes rather than pursue the establishment of a partnership in the North. Eun Mee Kim and Yooyeon Noh demonstrate that the corresponding business ventures have suffered from a lack of institutions, norms, and practices for commerce. But they argue that South Korean corporations have enjoyed in the North a certain comparative advantage over those of China, for example, cheap but high-quality labor and geographical proximity. Edward Reed finds that South Korean NGOs have gradually increased the influence of their reach into North Korean society, adding to the official engagement a dimension that has hitherto been missing. But he notes also that as the South Korean government expands its direct aid and economic projects in the North, the NGOs face new problems such as a lack of authentic counterparts in the North and the need to define their distinctive role there. Charles Armstrong argues that North Korea has not undergone the significant change to which, South Korea had hoped, the engagement strategy would give rise. The North has exhibited a tactical change but not a strategic transformation in relations with the South. Pyongyang’s official position toward Seoul has remained fundamentally consistent. Furthermore, since the crisis in U.S.-DPRK relations deepened in 2002, inter-Korean relations have reached a level at which Seoul is politically dependent on Pyongyang.

NOTES 1. Leon V. Sigal, “North Korea Is No Iraq: Pyongyang’s Negotiating Strategy,” Arms Control Today 32, no. 10 (December 2002): 8. 2. Victor D. Cha and David Kang, Nuclear North Korea: A Debate on Engagement Strategies (New York: Columbia University Press, 2003). 3. Aaron Friedberg and David Kang, “How to Control a Nuclear North Korea?” Council on Foreign Relations, December 4, 2006. http://www.cfr.org/publication/12164/. Emphasis in original. 4. Mark Mazzetti and William J. Broad, “The Right Confronts Rice over North Korea Policy,” New York Times, October 25, 2007. 5. Leon V. Sigal, Disarming Strangers: Nuclear Diplomacy with North Korea (Princeton: Princeton University Press, 1998), 252. 6. Joel S. Wit, Daniel B. Poneman, and Robert L. Gallucci, Going Critical: The First North Korean Nuclear Crisis (Washington, DC: Brookings Institution Press, 2004), 405. 7. Victor D. Cha, “The Rationale for ‘Enhanced’ Engagement of North Korea: After the Perry Policy Review,” Asian Survey 39, no. 6 (November/December 1999): 859.

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8. Cha and Kang, Nuclear North Korea, 172–77. 9. Ruediger Frank, “The Political Economy of Sanctions against North Korea,” Asian Perspective 30, no. 3 (2006): 5–36. 10. Son Key-young, South Korean Engagement Policies and North Korea: Identities, Norms and the Sunshine Policy (London: Routledge, 2006), 43. 11. James T. Laney and Jason T. Shaplen, “How to Deal with North Korea,” Foreign Affairs 82, no. 2 (March/April 2003): 16–30. 12. Michael O’Hanlon and Mike Mochizuki, “Toward a Grand Bargain with North Korea,” Washington Quarterly 26, no. 4 (Autumn 2003): 14–15. 13. James Clay Moltz and C. Kenneth Quinones, “Getting Serious about a Multilateral Approach to North Korea,” Nonproliferation Review 11, no. 1 (Spring 2004): 138. 14. Richard Ned Lebow and Janice Stein, “Deterrence: The Elusive Dependent Variable,” World Politics 42, no. 3 (April 1990): 336–69. 15. Barry Nalebuff, “Rational Deterrence in an Imperfect World,” World Politics 43, no. 3 (April 1991): 313–35. 16. Terence Roehrig, From Deterrence to Engagement: The U.S. Defense Commitment to South Korea (Lanham, MD: Lexington Books, 2006), 22. 17. Gary Hufbauer, Jeffrey Schott, and Kimberly Ann Elliott, Economic Sanctions Reconsidered (Washington, DC: Institute for International Economics, 1990). 18. Robert Pape, “Why Economic Sanctions Do Not Work,” International Security 22, no. 2 (Fall 1997): 90–136; Daniel Drezner, “The Trouble with Carrots: Transaction Costs, Conflict Expectations, and Economic Inducements,” Security Studies 9, no. 1 (1999/2000): 188–218. 19. Miroslav Nincic, “The Logic of Positive Engagement: Dealing with Renegade Regimes,” International Studies Perspectives 7, no. 4 (2006): 321–41. 20. Miles Kahler and Scott Kastner present three different types: conditional engagement, unconditional engagement utilizing constraining effects of interdependence, and unconditional engagement utilizing transformative effects of interdependence. And David Shambaugh suggests different variants: constructive, conditional, and coercive engagements, depending on the degree of punitive measures. See Kahler and Kastner, “Strategic Uses of Economic Interdependence: Engagement Policies on the Korean Peninsula and across the Taiwan Strait,” Journal of Peace Research 43, no. 5 (2006): 523–41; Shambaugh, “Containment or Engagement of China?” International Security 21, no. 2 (Fall 1996): 184. 21. Richard N. Haass and Meghan L. O’Sullivan, “Introduction,” in Honey and Vinegar: Incentives, Sanctions, and Foreign Policy, ed. Richard N. Haass and Meghan L. O’Sullivan (Washington, DC: Brookings Institution Press, 2000), 4–5. 22. Michael Mastanduno, “The Strategy of Economic Engagement: Theory and Practice,” in Economic Interdependence and International Conflict: New Perspectives on an Enduring Debate, ed. Edward Mansfield and Brian Pollins (Ann Arbor: University of Michigan Press, 2003), 175–86; Joanne Gowa, Allies, Adversaries, and International Trade (Princeton: Princeton University Press, 1994); Dale Copeland, “Trade Expectations and the Outbreak of Peace: Détente 1970–74 and the End of the Cold War 1985–91,” Security Studies 9, no. 1 (1999/2000): 15–58; Rawi Abdelal and Jonathan Kirshner, “Strategy, Economic Relations, and the Definition of National Interests,” Security Studies 9, no. 1 (1999/2000): 119–56.

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23. Kahler and Kastner, “Strategic Uses of Economic Interdependence,” 523–41. 24. Etel Solingen, Regional Orders at Century’s Dawn: Global and Domestic Influences on Grand Strategy (Princeton: Princeton University Press, 1998), 26–32; “Internationalization, Coalitions, and Regional Conflict and Cooperation,” in Economic Interdependence and International Conflict, ed. Mansfield and Pollins, 60–85. 25. Solingen, Regional Orders at Century’s Dawn, 22. 26. Ibid., 278–81. 27. Lawrence S. Wittner, Toward Nuclear Abolition: A History of the World Nuclear Disarmament Movement, 1971 to the Present (Stanford: Stanford University Press, 2003), 429–33. 28. Robert Axelrod, The Evolution of Cooperation (New York: Basic Books, 1984). 29. After three years of Henry Kissinger-Le Duc Tho talks, the United States and Vietnam reached a cease-fire deal, for which President Nixon secretly promised that the United States would provide North Vietnam with an aid package of $3.25 billion. See Frederick Z. Brown, “U.S.-Vietnam Normalization: Past, Present, Future,” in Vietnam Joins the World, ed. James W. Morley and Masashi Nishihara (Armonk, NY: M. E. Sharpe, 1997), 204; Stanley Karnow, Vietnam: A History (New York: Penguin, 1983), 698–99. 30. “North Korea Talks ‘Stall over Energy,’ ” BBC News, February 11, 2007. http://news.bbc.co.uk/go/em/-/1/hi/world/asia-pacific/6350007.stm. 31. As Victor Cha has noted, North Korea’s provocation has functioned, even if not to produce a military victory, to initiate “coercive bargaining,” which has resulted in outcomes whose advantages are greater than those resulting from the status quo. See Victor Cha, “Hawk Engagement and Preventive Defense on the Korean Peninsula,” International Security 27, no. 1 (Summer 2002): 63. 32. Sung Chull Kim, North Korea under Kim Jong Il: From Consolidation to Systemic Dissonance (Albany: State University of New York Press, 2006). 33. For example, President Roh Moo Hyun said at a cabinet meeting that inter-Korean economic dependence is the most important requirement for peace on the Korean Peninsula. Donga Ilbo, August 15, 2007. 34. Theodore Caplow, Two against One: Coalitions in Triads (Englewood Cliffs, NJ: Prentice-Hall, 1968). 35. A survey result shows that 41.5 percent of South Korean respondents do not feel threatened by North Korea’s 2005 declaration of possession of nuclear weapons. No doubt, this trend is more distinctive in the group self-identified as anti-American, a group that consists of 50.3 percent of the total respondents. Park Jong-chul and four others, 2005 nyo˘ndo tong’il munje kungmin yo˘ron chosa (Survey Analysis of Unification Issues, 2005) (Seoul: Korea Institute for National Unification, 2005), 151–52. 36. Of many, see Sigal, “North Korea Is No Iraq”; Condoleezza Rice, “Promoting the National Interest,” Foreign Affairs 79, no. 1 (January/February 2000): 45–62; Kent E. Calder, “The New Face of Northeast Asia,” Foreign Affairs 80, no. 1 (January/February 2001): 106–22; Dennis C. Blair, “From Wheels to Webs: Reconstructing Asia-Pacific Security Arrangements,” Washington Quarterly 24, no. 1 (Winter 2001): 7–17; Victor D. Cha, “Korea’s Place in the Axis,” Foreign Affairs 81, no. 3

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(May/June 2002): 79–92; Sebastian Harnisch, “U.S.-North Korean Relations under the Bush Administration: From ‘Slow Go’ to ‘No Go,’ ” Asian Survey 42, no. 6 (November/December 2002): 856–82; Phillip C. Saunders, “Confronting Ambiguity: How to Handle North Korea’s Nuclear Program,” Arms Control Today 33, no. 2 (March 2003): 11–15; Cheon Seongwhun, Cooperative Denuclearization of North Korea (Seoul: Korea Institute for National Unification, 2006). 37. Lee Jong Won, “Datsureisen o mezashi nessen no shusenjo husenkyodotai ni: Taibei ippento kara takokukan kankei e” (“From the Main Battlefield of the Hot War to a War-free Community in Pursuit of Getting out of the Cold War: From the U.S.-only Approach to Multilateral Relations”), in Niccho kosho kadai to tenbo (Tasks and Prospects of the Japan-North Korea Negotiations), ed. Kang Sang Jung, Mizuno Naoki, and Lee Jong Won (Tokyo: Iwanami Shoten, 2003), 33–44. 38. Asahi Shimbun, February 14, 2007. 39. Wada Haruki, “Envisioning a Northeast Asian Community: Regional and Domestic Factors to Consider,” in Regional Cooperation and Its Enemies in Northeast Asia: The Impact of Domestic Forces, ed. Edward Friedman and Sung Chull Kim (London: Routledge, 2006), 52; Christopher W. Hughes, “The Political Economy of Japanese Sanctions towards North Korea: Domestic Coalitions and International Systemic Pressures,” Pacific Affairs 79, no. 3 (Fall 2006): 461–66. 40. Japan Times, July 16, 2007. 41. Shambaugh, “Containment or Engagement of China?” 206. 42. For a discussion on related media effects, see Hyung Gu Lynn, “Vicarious Traumas: Television and Public Opinion in Japan’s North Korea Policy,” Pacific Affairs 79, no. 3 (Fall 2006): 483–508.

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TWO

WAITING TO REAP THE FINAL HARVEST U.S. Engagement Policy to Denuclearize North Korea Youngshik D. Bong

Since the Democratic People’s Republic of Korea (DPRK, or North Korea) detonated a nuclear device on October 9, 2006, the Bush administration has increasingly departed from its previous policy aiming for a complete, verifiable, and irreversible dismantlement (CVID) of all nuclear facilities inside North Korea as a precondition for meaningful bilateral negotiations. The administration’s decision to take gradual steps of engagement became evident at the second round of the fifth Six-Party Talks in Beijing on December 18–22, 2006. Assistant Secretary for East Asian and Pacific Affairs Christopher R. Hill, the head of the U.S. delegation, met Kim Gye Gwan, his North Korean counterpart, and reiterated the message he had delivered during the bilateral talks on November 28–29, 2006: the United States would provide economic incentives in exchange for a freeze of North Korea’s nuclear activities. Since its inception, this new route of diplomacy was dubbed the “Early Harvest” proposal, a staged engagement strategy with North Korea that assumes that an early harvest (winning North Korea’s acquiescence to halt its nuclear programs and allow international inspections) will lead to a final harvest (complete dismantlement of North Korea’s nuclear program) in the near future.1 Critics of the Bush administration’s engagement with North Korea have called the Early Harvest approach a misplaced “faith-based nonproliferation” strategy, which they contend lacks reliable means to verify

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North Korea’s promises and sets a dangerous precedent for Iran.2 Proponents defend the engagement, declaring that the outcomes of recent DPRK-U.S. negotiations illustrate the likelihood that the two parties will continue on the diplomatic route toward a “big deal” that will culminate in the denuclearization of the Korean Peninsula, diplomatic normalization between the United States and North Korea, and a peace treaty to end the Korean War.3 These observations must be closely scrutinized and treated with great caution. On the one hand, by any reasonable standards, the U.S. engagement strategy since late 2006 may be construed as strong evidence that engagement with North Korea should be the default policy for the United States.4 On the other hand, there are questions as to whether the recent engagement strategy will ultimately lead to a final harvest that satisfies the United States. The current negotiations with North Korea will be considered a failure if they do nothing more than keep North Korea from transferring its nuclear materials and technologies outside the country. The success of the negotiations depends ultimately on forcing Pyongyang to abandon fissile materials that it has already produced. This chapter argues that the current staged engagement strategy of the United States toward North Korea is unlikely to succeed. If the final goal of U.S. diplomacy toward nuclear North Korea is complete denuclearization, Washington eventually must move from the current staged-engagement strategy to a full-engagement strategy. As opposed to a staged-engagement strategy, a full-engagement strategy is unilateral, proactive, and disproportionate in nature. It stipulates that, to complete a deal, one negotiating party should move beyond the tit-for-tat or action-for-action pattern and grant the other party a full spectrum of attractive incentives without demanding simultaneous reciprocation. As such, the United States would demand the completion of CVID of the North Korean nuclear program after the United States grants North Korea a full spectrum of incentives North Korea has insisted upon—a genuine security guarantee, reduction of U.S. forces across its border in South Korea, and the provision of light-water reactors. This chapter analyzes the recent phase of U.S. engagement with North Korea and examines why even a good early start might not guarantee a good ending. The chapter first summarizes the Early Harvest approach. It then compares the current engagement strategy to a full-engagement strategy and contends that the latter is a superior choice by which the United States can accomplish its goal of North Korean nuclear disarmament. The chapter argues that South Korea holds the key to the completion of a “big deal” between the United States and North Korea. South Korea’s own engagement policy toward North Korea has been driven predominantly by its fear of becoming entangled in a major armed conflict on the Korean Peninsula.5 If we assume that Seoul is genuinely interested in the denuclearization of

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the Korean Peninsula, a U.S. strategy of full engagement would help South Korea shift the focus of its North Korea policy from dodging entrapment in a DPRK-U.S. military conflict to preventing the United States from abandoning its role as South Korea’s security partner. The chapter concludes that the current nuclear standoff between the United States and North Korea will stop short of achieving the “big deal” because considerable uncertainty surrounds U.S. application of a full-engagement strategy.

STAGED ENGAGEMENT VERSUS FULL ENGAGEMENT Measuring the success of a U.S. strategy toward nuclear North Korea is a highly contestable exercise, depending upon one’s perception of what constitutes success. The Early Harvest approach is successful insofar as in late 2002 it turned the clock back to the time prior to the breakdown of the 1994 Agreed Framework. However, despite the early success, it still remains unclear whether or not the early phase of the nuclear negotiations bodes well for eventual denuclearization and not just for disablement and reporting. The Early Harvest Approach and the Initial Outcomes The Early Harvest approach adopted by the Bush administration has produced some early breakthroughs. At the round of the Six-Party Talks in Beijing held on February 8–13, 2007, the first talks since Pyongyang’s October 2006 nuclear test, the member countries signed the Initial Actions for the Implementation of the Joint Statement of September 19, 2005. The February 13 Agreement in 2007 was particularly significant for bilateral negotiations between the United States and North Korea in that it affirmed the two countries’ agreement to “take coordinated steps . . . in line with the principle of ‘action for action.’ ” According to this statement, in the initial phase of the implementation, North Korea agreed to disable the Yongbyon nuclear facility and to permit International Atomic Energy Agency (IAEA) officials to verify the activity within sixty days after the agreement was signed. North Korea also promised to “discuss with other parties a list of all its nuclear programs,” as described in the 2005 Joint Statement. In return, the United States would begin the process of removing North Korea from its State Sponsors of Terrorism list and would terminate U.S. application of the Trading with the Enemy Act to North Korea.6 The bilateral negotiations between North Korea and the United States maintained their momentum in spite of the feud over financial sanctions imposed by the United States on Banco Delta Asia, a Macau-based bank that the U.S. Treasury Department accused of aiding Pyongyang’s illicit money-laundering activities. In protest of the U.S. sanctions, the North Korean delegation walked out of the next round of the Six-Party Talks

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held in March 2007 and demanded the release of the bank’s North Korean accounts—equivalent to approximately twenty-five million U.S. dollars. However, after receiving the previously frozen funds from Banco Delta Asia in June 2007, the North Korean government announced that it would begin implementing the February 13 Agreement and invited Secretary Hill to Pyongyang for a two-day visit, the first visit to the country by a senior American official in nearly five years. As it had been laid out in the Initial Actions, Pyongyang subsequently shut down its nuclear reactors in return for an initial shipment of fifty thousand metric tons of fuel oil under the February Agreement. On July 17, 2007, the ten-member team of IAEA inspectors who had been invited by the North Korean government monitored and verified the shutdown and the sealing of the five nuclear facilities at Yongbyon. At the second session of the sixth round of the Six-Party Talks on September 27–30, 2007, North Korea agreed to disable the three main nuclear facilities at its Yongbyon site and to provide a “complete and correct” declaration of all its nuclear programs by the end of 2007. In September, U.S. president George W. Bush authorized for the North an aid payment of US$25 million that would cover the cost of fifty thousand tons of heavy fuel, and he praised the outcome of the new round of the Six-Party Talks as reflective of the “common commitment” of all the parties to the complete denuclearization of North Korea. For its part, the United States would lead both the disablement activities, including initial funding for them, and the international provision of the remaining 950,000 metric tons of fuel oil for North Korea. In addition, Washington reiterated its willingness to begin the process of removing North Korea from the U.S. terrorism list in tandem with the North’s actions, though Washington did not offer a specific timetable. Such a give-and-take process has been significantly delayed as Pyongyang and Washington have not agreed on what constitutes a “complete and correct” declaration of North Korea’s nuclear programs. Only after bilateral negotiations in Geneva and Singapore past the original deadline for North Korea submitting the declaration, did the United States and North Korea reach a tentative deal that Washington would lift economic sanctions on North Korea in exchange for Pyongyang “acknowledging” the U.S. concerns and allegations of its involvement in a range of nuclear activities without having to publicly admit them.7 The deal quickly became subjected to heavy criticism inside the United States that the Bush administration gave up too much too early simply in order to keep the momentum of engagement with North Korea under the February 13 Agreement.8 On the other hand, the deal also allowed both Washington and Pyongyang to fulfill their respective ends of the agreement. In June 2008 North Korea demolished the cooling tower at its main nuclear power complex in Yongbyon. In return for Pyongyang’s decision to disable

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the plutonium plants and to resume the verification effort by international inspectors, the Bush administration in October removed North Korea from a list of State Sponsors of Terrorism. The Limits of the Early Harvest Approach The Early Harvest approach is about the increasing returns of small successes. Its overriding assumption is that successes made in an early phase of negotiations will reduce mutual distrust and increase the cost of defections for both Washington and Pyongyang. The approach is also based upon the principle of concurrent reciprocation. In the DPRK-U.S. nuclear negotiations, give-and-take is strictly simultaneous and equal: neither side gives first and takes later, or vice versa. One side gets only as much as it gives, and yields as much as the other side does. The main problem of the Early Harvest approach is that both the logic of increasing returns and the principle of simultaneous reciprocity may stop working when the negotiations between the United States and North Korea enter the final phase of the big deal. The strategy of a staged engagement in the Early Harvest approach does not provide Washington with effective means either to prevent these mechanisms from breaking down or to punish Pyongyang’s defection from them. First, nuclear weapons may have become too valuable for Kim Jong Il’s regime to trade away under the principle of simultaneous reciprocity. As Sung Chull Kim and David Kang contend in their chapter in this volume, North Korea’s status as a nuclear power has fostered a newfound national pride and sense of identity that will powerfully affect the psychology of decision making in Pyongyang. Testimony by South Korean journalists and officials who have met with Kim Jong Il and other high-ranking North Korean officials strongly corroborates this view.9 The U.S. invasion of Iraq in 2003 has enormously increased the Kim regime’s obsession with nuclear weapons as the ultimate deterrent to possible U.S. attempts to trigger regime change in North Korea. Considering what nuclear weapons mean today for the Kim regime, Pyongyang is expected to delay the completion of the final phase of a “big deal” with the United States. At the same time, the Kim regime will insist that it receive from the United States genuine security assurance and normalization of DPRK-U.S. relations prior to any decision by North Korea to abandon nuclear weapons or weapons-grade materials. Furthermore, the Early Harvest approach does not leave the United States with an acceptable fallback position. For China, Russia, Japan, and South Korea, a breakdown in a conditional and staged engagement does not mean that North Korea has been caught red-handed. Any failure with a staged engagement will not be enough to convince all the members of the engagement coalition that every opportunity to resolve the nuclear issue

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through engagement has been exhausted. They might still disagree whether the time has come to turn to coercive methods. Consider a hypothetical situation in which Pyongyang rejects the current negotiations or sets off provocations, hoping to improve its bargaining position. To the United States, whose top priority is curbing nuclear proliferation, such defiance proves that Pyongyang has defected from the deal or clearly crossed the “red line.” However, to other members, who have different strategic priorities, Pyongyang’s actions are unlikely to amount to indisputable hard evidence justifying coercive means. Owing to their geographic proximity and political concerns, these members will judge Pyongyang’s behavior less harshly, hoping it will not lead to military consequences. To North Korea, breakdown of the negotiations is an undesirable but bearable outcome, as long as the country keeps its nuclear card and remains unpunished for its actions. In sum, a staged-engagement strategy would not create the conditions that would convince Pyongyang to agree to nuclear disarmament. The U.S. engagement strategy must convince the Kim regime that resisting the demand for nuclear disarmament is unnecessary, even detrimental, to its survival. It also must enable Washington to build a consensus, in the engagement coalition, that compromise on denuclearization is absolutely unacceptable. The current staged-engagement strategy does not appear to address these preconditions adequately. It will not help create a situation in which all members of the Six-Party Talks—including North Korea—could ever agree that all nonconfrontational avenues to resolve the nuclear issue with the North have been exhausted. Washington’s strategy of portraying North Korea as the deal breaker—even when it is Pyongyang that is actually accountable for breaking off the negotiations—will inevitably come up short.

SOUTH KOREA AND U.S. STRATEGIC CHOICES The five parties in multilateral engagement with North Korea through the Six-Party Talks have different aims, scopes, and preferences in their choice of instruments.10 The main goals of the U.S. engagement strategy have so far been nonproliferation and denuclearization of North Korea through discipline and strict and transparent reciprocity. However, its Asian partners China, Japan, and South Korea have remained unwilling to endorse in no uncertain terms Washington’s coercive approach toward Pyongyang. In particular, South Korea’s opposition to applying pressure and coercion on Pyongyang has emerged as the main stumbling block. Without a resolution to the disparity between U.S. and South Korean priorities, multilateral engagement with nuclear North Korea will not compel Pyongyang to undertake the complete nuclear disarmament that is necessary to achieve the “big deal.”

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For the United States, policy coordination with South Korea on the North Korea issue has never been an easy business. In contrast to the U.S. strategy, South Korea’s highest priority in the engagement strategy has been preventing a major armed conflict triggered by a DPRK-U.S. confrontation over the nuclear issue, not eliminating proliferation threats. Seoul also aims to induce behavioral and identity changes in North Korea through the enticement of national reconciliation and interdependence. With the Sunshine policy under the Kim Dae Jung administration and the succeeding Policy of Peace and Prosperity under the Roh Moo Hyun administration, South Korea has deprived the Bush administration of much of its autonomy to impose its preferred end game of engagement. In his 2006 Congressional testimony, Under Secretary of State R. Nicholas Burns explained that the dual-track strategy of the Bush administration is a creative and combined manipulation of sticks and carrots toward North Korea: “implementing fully the UN sanctions to penalize and isolate the regime” and “keeping the door open to discussions and a return to the Six-Party Talks.”11 The dual-track strategy has three main assumptions. First, exertion of pressure and provision of diplomatic incentives are mutually reinforcing; second, the United States freely chooses one method over the other to maximize its influence over North Korea’s intentions and behavior; third, there is a threshold, or a “red line,” that is universally accepted by all members in the coalition of engagement. It is assumed that the members share a set of reasonably common perspectives and measures to judge two matters: (1) whether or not the adversary has crossed that ultimate threshold; and if so, (2) whether or not the members should instantly replace engagement with compellence.12 Theoretically, the point at which engagement indisputably switches to compellence in the dual-track approach is not hard to imagine. But in reality, Washington has not been able to find a responsible exit strategy agreeable to South Korea. Seoul has had a very deep aversion to a compellence strategy because of South Korea’s psychological closeness with North Korea and its deep fear of massive retaliation and an accidental war. The past track record suggests that it is unlikely that Seoul will fully support the U.S. effort to achieve complete and verifiable dismantlement of North Korea’s nuclear programs and facilities until it believes that its national security is in critical danger because of the North’s nuclear capability. Seoul’s Perspective on North Korea’s Nuclear Programs The South Korean government has explicitly and repeatedly affirmed its commitment to keeping nuclear weapons out of the Korean Peninsula. The most notable official document proclaiming this commitment is the 1992

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Joint Declaration of the Denuclearization of the Korean Peninsula. However, despite its official position, South Korea has not absolutely prioritized the elimination of North Korean nuclear capability. The elimination constitutes only a secondary consideration in South Korea’s efforts to maintain peaceful coexistence with North Korea. In the history of the North Korean nuclear crisis since 1993, the South Korean government and public have demonstrated a persistent and manifest aversion to pressure and coercion as a solution to the nuclear issue. During the first nuclear crisis in the 1990s, in response to then U.S. president Bill Clinton’s message that hinted at U.S. intentions to launch a surgical strike on the Yongbyon nuclear facility and that the United States sought South Korea’s cooperation, then president of South Korea Kim Young Sam firmly rejected any type of South Korean involvement in that plan. Such deep aversion to the risk inherent in a coercive strategy has not declined; indeed, it has only increased. In response to President Bush’s 2002 State of the Union address that branded North Korea as part of “the axis of evil” and a “regime arming with missiles and weapons of mass destruction, while starving its citizens,” the South Korean Ministry of Unification toned down the rhetoric, stating in a press release that North Korea’s nuclear weapons were “not for the purpose of attacking the South, but to serve as a bargaining chip when negotiating with powerful countries. . . . Even if the North does possess nuclear weapons, she would be reluctant to make use of them in the small Korean Peninsula.”13 Furthermore, before the 2006 nuclear test, both the Kim Dae Jung administration and the Roh Moo Hyun administration defended their unconditional-engagement strategy toward the North and their refusal to participate in the U.S.-led attempts to pressure the North. They maintained that no available evidence indisputably proved that the North had crossed the red line. It is telling that, even after North Korea’s nuclear detonation in October 2006 and the passage of UN Resolution 1718 on October 14, 2006, the Roh administration declined to pressure Pyongyang by suspending the South’s participation in the Mt. Kumgang tourism project and the Kaesong Industrial Complex. The Roh administration also turned down the U.S. request to join the Proliferation Security Initiative at the meeting between Ban Ki-moon, then the foreign minister of South Korea (now the secretary general of the United Nations), and Condoleezza Rice, the U.S. secretary of state. The Bush-Roh summit during the 2006 Asia-Pacific Economic Cooperation conference held in Hanoi, Vietnam, failed to change Seoul’s position on this matter.14 There are three main reasons for Seoul’s defensive and conditional attitude toward the North’s nuclear programs. First, there is a collective perception among South Koreans that the North’s nuclear capability could be some sort of asset for a united Korea in the future. During the first North

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Korean nuclear crisis, the conservative and anticommunist Kim Young Sam administration displayed a permissive attitude toward North Korea’s pursuit of nuclear programs. The overriding assumption in the conservative camp was that, as the implosion of North Korea was imminent (and it followed that reunification or absorption would ensue), South Korea would naturally acquire North Korea’s nuclear capabilities.15 Thus, the Clinton administration’s conciliatory policy toward North Korea, after the 1994 Agreed Framework, was criticized as saving the failing regime from its not-so-distant demise and thus obstructing South Korea’s plans to inherit its own nuclear deterrence capabilities. Second, North Korea’s nuclear pursuits have served to vicariously satisfy some South Koreans, especially the so-called 386 generation, which holds a generally critical opinion of the United States. As Don Oberdorfer documents in his book The Two Koreas, South Korean president Park Chung Hee beat North Korea to the punch and aggressively pursued nuclear weapons and long-range missile systems in the 1970s. The fact that the Chun Doo Hwan administration, which succeeded Park’s authoritarian regime, terminated those military programs amid U.S. pressure served only to further enhance for South Korea the psychological appeal of possessing nuclear capability. Regardless of which Korea has them, the presence of nuclear weapons somewhere on the Korean Peninsula seemingly represents Korean people becoming more independent and powerful in the global arena.16 Finally, the geographic proximity of the two Koreas across the Demilitarized Zone (DMZ) affects South Koreans’ perception of a nuclear threat from the North. North Korea’s possession of nuclear weapons would not comprise a serious threat per se; after all, the South is already well within the range of devastating conventional attacks from the North. What is more dangerous is a preemptive use of force by the United States as an antiproliferation measure, which would lead to war.17 The October 2006 nuclear test, with which Pyongyang declared its status as a new nuclear power, has only reinforced the South’s fear of entrapment. For instance, at the thirty-eighth Security Consultative Meeting on October 20, 2006, less than two weeks after the North’s nuclear test, the Roh administration of South Korea sought to remove the affirmation clause of the U.S. nuclear umbrella over South Korea from the Joint Communiqué.18 Nuclear independence is so deeply entrenched in South Korea’s collective psychology that domestic ideological differences and leadership changes in the South do not appear to significantly influence either its permissive attitude toward the North’s nuclear capability or its aversion to coercive solutions to denuclearization. Analysis of public opinion in South Korea supports the forecast that South Korea will not concern itself primarily about North Korea’s status as a nuclear power. In a national survey released in February 2005, 74.7 percent of South Koreans appeared to insist that the

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North Korean nuclear crisis must be resolved with persuasion; only 22.8 percent preferred pressure. More important, the level of support for persuasion over pressure was as dominant among the supporters of the Grand National Party, the conservative and anticommunist opposition party (68.8 percent for persuasion versus 30.7 percent for pressure).19 In short, the polls indicate that the fear of being victimized by a recalcitrant Pyongyang and a bullying Washington is the biggest concern for the absolute majority of South Koreans, regardless of one’s ideological bent or interest in denuclearization. The findings also demonstrate that the leadership change in South Korea after presidential elections in December 2007 will not significantly alter the default condition of the multilateral engagement strategy toward the North. Getting Seoul’s Support for Nonproliferation and Denuclearization Before February 2007, disparity and discord between U.S. policy toward North Korea and South Korean engagement policy produced frustration and a sense of hurt and anger among members of the Bush administration. It diverted the attention of analysts and policymakers from understanding the substantive characteristics of Seoul’s engagement strategy and its complex nature. On a number of occasions, U.S.-based Korea experts and U.S. government officials complained about South Korea’s standing as “a country without a coherent strategy for coping with its North Korea problem.”20 Likewise, many U.S. observers who were accustomed to the cold war mentality viewed South Korea’s own engagement with North Korea primarily with disdain for a perceived “breach of faith” and ungratefulness.21 The rise of anti-American sentiment in 2002–03 reinforced the perception that Seoul had begun to drift toward national unification with the North, prompting outcries over the possibly apocalyptic consequences that the end of the alliance would occasion.22 Unlike the arguments made by critics in the United States, Seoul’s engagement policy toward North Korea has been driven consistently by the logic of realpolitik, which accords the highest priority to national security in terms of preventing another war on the peninsula. By the same token, anti-Americanism in South Korea has been principally a manifestation of collective concern for national security, not the product of a pro–North Korean nationalistic agenda. South Korea’s engagement policy toward North Korea has been incompatible with neither the interests of the United States in general nor the spirit of the existing security alliance in particular. Charles L. “Jack” Pritchard, who served as U.S. representative to the Korean Peninsula Energy Development Organization (KEDO) and special envoy for negotiations with North Korea, explains in his book Failed Diplomacy: The Tragic Story of How North Korea Got the Bomb that the U.S.

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engagement strategy should identify and cultivate elements that it shares with other participants’ strategies, rather than oppose the other participants’ strategic preferences.23 He suggests that U.S. engagement with nuclear North Korea move beyond accusations and threats. The task at hand is not to deal with South Korea’s strategy as it is but to transform the strategy so that U.S. priorities gain credence. Seoul will likely render genuine support for a big deal between North Korea and the United States only if two conditions are met: First, Seoul becomes convinced that Pyongyang alone is accountable for delays and derailments of multilateral engagement. Such a scenario will not be possible unless the United States accepts everything that South Korea deems essential to meet North Korea’s demand for abandoning its nuclear programs and materials. Second, Seoul begins to view denuclearization as an indispensable precondition for its own national survival. That is, South Korea must see the danger to its security of losing patron commitment. It must be convinced that the cost of being abandoned by the United States is far greater than the danger of being entrapped by the U.S. policy of nonproliferation.24 Contrary to some pessimistic views, the impossibility of persuading South Korea to move to the U.S. side is not a foregone conclusion. The key to success is to tap into the realpolitik logic of deterrence in Seoul’s engagement with the North. Analysis of the South’s anti-American mood and of Seoul’s security policy suggests that Seoul will likely support a complete nuclear disarmament of North Korea only when the South’s fear that the United States will abandon it outweighs the its fear that the United States, perhaps through a preemptive strike, will embroil it in a military conflict with the North. South Korea is not predisposed to prioritizing “nationalist” agendas at the expense of strategic material gains. Several findings indicate that Seoul adopts its engagement strategy with North Korea—whether the strategy is named the Sunshine policy or the Peace and Prosperity Policy—according to calculations of the strategy’s relative utility in achieving peaceful coexistence with the North. First, since peaking in late 2002, anti-American sentiment has, in fact, largely disappeared from the South Korean political scene. For instance, the general atmosphere between the United States and South Korea in 2002 was remarkably similar to the corresponding atmosphere in 2004. But a series of small and large events of the sort that had supposedly led to a spike in anti-Americanism in 2002 failed to produce the same outcome in 2004.25 South Korea’s attitude toward the United States is neither monolithic nor fixed.26 Furthermore, South Koreans’ emotional sentiment critical of the United States and South Korea’s actual policy choices are largely discrete. For example, Haesook Chae finds that young South Koreans distinguish between their feelings toward the North Korean people and their judgment of

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the North Korean leadership. Because of their significant antipathy toward the Kim regime, Chae concludes, young South Koreans are no less likely than older generations to regard the regime as a source of threats and oppression.27 Indeed, a Transaction Network Services survey in October 2007 found that South Koreans in their twenties and thirties appear to be less enthusiastic about the second inter-Korean summit held in October 2007 than older generations.28 Many young South Koreans, the main constituents of the anti-American movement in 2002–03, perceive withdrawal of U.S. forces mainly in symbolic terms, as a culmination of South Korea’s efforts to achieve selfreliance and independence in the area of national security. At the same time, they are aware of the intrinsic value of the U.S. forces and the financial and strategic implications of immediate and drastic changes in the military alliance. In this regard, it is not surprising that many young South Koreans who have denounced the U.S. invasion of Iraq as unjust have supported their government’s decision to dispatch troops as a prudent quid pro quo for maintaining the U.S.-South Korea security cooperation.29 It is not necessarily inconsistent that young South Koreans are discontented with the U.S. military presence in their country but still prefer to maintain that presence in.30 In bilateral negotiations for relocation and reconfiguration of the United States Forces Korea (USFK), South Korea has revealed a deep-seated concern for trade-offs between an independent national defense and a diminished U.S. security commitment.31 In response to the USFK troop relocation plans, the South Korean government attempted to acquire the U.S. government’s official affirmation of the Four Principal Preconditions for relocating the Second Division of the USFK.32 Widespread concern also emerged as to whether the dismantlement of the Combined Forces Command would in any way nullify the legal basis for automatic intervention of the USFK in an armed conflict against the South according to Article 3 of the Mutual Security Treaty.33 Likewise, when the Bush administration declared that the South Korean government would take over wartime operational control of the South Korean military from the USFK by 2009 rather than by the initially agreed-upon year of 2012, there was a public roar of concern about South Korea’s own capability for self-defense. In addition, at no point during the entire period of negotiations did the revision of the Status of Forces Agreement (SOFA) emerge as a critical or viable issue. The wild fluctuation of the SOFA discourse is a remarkable turnaround. One opinion survey conducted from December 2002 to early 2003, at the peak of the anti-American movement, revealed that 63.5 percent of South Koreans believed that the SOFA should be immediately overhauled. But, six months later, support for a radical revision of the SOFA had dwindled to just 34.2 percent.34

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In sum, these findings suggest that Washington will receive the most cooperation from South Korea on the North Korea issue when Seoul is averse to the potential risk of going it alone in its relations with the North.35 A U.S. embrace of the full-engagement strategy appears to be the best option by which the United States can help Seoul depart from its default engagement strategy, which absolutely opposes coercive measures. Engagement with North Korea will be open-ended unless South Korea agrees both that all possible diplomatic efforts to resolve the crisis have been exhausted and that the only remaining reasonable action must be punitive. Such an admission requires the United States both to preempt North Korea’s temptation to raise additional demands as a precondition to complete nuclear dismantlement and to create neither an excuse nor an incentive for South Korea to risk its alliance with the United States over North Korea. The post–presidential election situation in 2008 has not yet compelled South Koreans to take a definite and clear stance on denuclearizing North Korea. Unlike his predecessor, the newly elected president Lee Myung Bak sees concrete security ties with the United States as a vital tool for interKorean peaceful coexistence, not an obstacle to it.36 On the other hand, in numerous public statements, President Lee affirms that his government is still committed to drawing North Korea out of its shell by engaging it economically.37 He also proposes to open official liaison offices in both capital cities to continue and promote dialogue and exchange with the North at official levels.38 It appears that bilateral negotiations between Washington and Pyongyang near the end of the term of the Bush administration have enhanced the autonomy and leverage of the Lee government of South Korea over the relationship between the two countries.

A FULL-ENGAGEMENT STRATEGY IN REGIONAL DYNAMICS For all practical purposes, the limits and the merits of a full-engagement strategy should be examined in the context not just of Washington-Seoul relations but of regional dynamics as well. How can we forecast North Korea’s and its neighbors’ likely responses with reasonable confidence if the United States chooses a full-engagement strategy? There are four major objections to Washington’s adoption of a full-engagement strategy regarding a big deal with the North: (1) historical examples show that the strategy will not work with North Korea; (2) North Korea cannot make the strategy work; (3) the financial burden would be excessive; and (4) the strategy would destabilize regional security. Let us examine these objections one by one. First, the United States has no experience with applying a fullengagement strategy to the North. The U.S. experiences with Asian countries that come closest to possible DPRK-U.S. full engagement are the

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normalization of relations between the United States and China in the late 1970s and between the United States and Vietnam in the first half of the 1990s. One may question whether or not the U.S. engagement with China or Vietnam suggests that a full engagement with the North is likely to succeed. In comparison with China at the height of the cold war, North Korea’s strategic value is too small and its national capacity may seem too weak to justify a host of U.S. concessions. As John Lewis Gaddis has written, many key foreign policymakers in the United States during the cold war such as George Kennan and Henry Kissinger realized that moving China to the U.S. pole was an important strategic intervention under the U.S. containment strategy regarding the Soviet Union.39 There is no Soviet pole to counter in today’s balance of power politics. Unlike China, North Korea may be regarded basically as a failing regime whose days are numbered. As for the second objection, there is no guarantee that the North Korean system will be transformed. It is still very much a debatable question as to whether the North Korean regime is committed to meaningful economic reform. The risk is too high that North Korea, having received all the concessions stemming from the full-engagement strategy of the United States, might still refuse to fulfill its end of the bargain, including complete nuclear disarmament. In comparison with Vietnam, a country that had persistently been making inroads toward economic reform since undertaking the 1986 self-criticism of the socialist system, North Korea may be viewed as failing to have unequivocally demonstrated its commitment to opening its system to the outside world. Third, there is an issue of financial burden sharing among all related parties, once the United States agrees to pursue a full-engagement strategy. The Clinton administration’s struggle with the U.S. Congress in fulfilling the U.S. end of the 1994 agreement with North Korea suggests that the United States is unlikely to stomach a disproportionate share of the costs necessary to finance a big deal with the North. Finally, the full-engagement strategy may provoke China, whose sphere of influence includes the North, and it might, at the same time, send a message to Washington’s Asian allies that the United States is beginning to reduce its security commitment in Asia. As for the U.S.-Japan alliance, aggressive engagement by the United States might undermine Japan’s efforts to redress the abduction issue with North Korea. Regarding the U.S.-South Korea alliance, South Korea might perceive the U.S. action as abandonment and thus a betrayal that vindicates an imminent termination of the relationship. These concerns notwithstanding, the United States still stands to benefit substantially from a full-engagement policy. To begin, it must be stressed that the danger of a nuclear North Korea is not confined to regional balance of power considerations. North Korea today is certainly not China during the

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cold war. But North Korea’s strategic importance is not limited to a military confrontation that takes place across the DMZ. The more glaring concern for the United States is Pyongyang’s development and possession of nuclear capabilities and the related implications for international terrorism. The second objection hinges on the assumption that the demise of North Korea is imminent. There have been rising speculations about the coming crisis of the Kim Jong Il regime because of North Korea’s systemic food shortages, internal divisions among elites, succession struggles, and personal health problems among North Korean leaders. However, North Korea’s track record tells us that the country has defied all the odds against its survival for more than a half-century. As Chung-in Moon and Yongho Kim assert, to predict the implosion of North Korea by looking solely at numbers of refugees and defectors is to commit the fallacy of secondary causation. Economic crisis is certainly a significant challenge to Kim Jong Il’s regime, but the crisis by itself will not lead to the regime’s collapse.40 Studies on the origins of the North Korean state suggest that a North Korean regime with refugee problems is more comparable to Cuba, Vietnam, or China during the Cultural Revolution than to East Germany prior to the fall of the Berlin Wall. Ineffective leadership and political chaos in North Korea are unlikely to take root. If such a scenario were to arise, it would create problems with “loose nukes” or render less reliable the outcomes of denuclearization negotiations. The North Korean leadership appears to struggle with experimental economic reform measures, the effects of which are not entirely under its control.41 However, if it is in the national interest of the United States that North Korea open up to the international community and undergo systemic change, then the full-engagement policy should promote that trend.42 If dire economic conditions in North Korea were one of the underlying motives for the state’s development of nuclear capabilities, then helping the regime take measures necessary for tackling its economic problems would have direct bearing on defusing the nuclear crisis.43 Moreover, before we examine what steps would guarantee success of engagement, we must first define “success” in relation to nuclear North Korea. What constitutes a “satisfactory” outcome for a given North Korea policy? Is it the successful prevention of the North’s possible transfer of nuclear materials; is it the downfall of the Kim regime; or is it complete nuclear disarmament? If the primary goal of engagement is to disarm North Korea, then the issue of its economic reform and regime stability should be examined in the context of denuclearization. As for the third objection related to financial difficulties, perhaps what would be more crucial than China’s attitude would be Japan’s reaction to a big deal between the United States and North Korea. In comparison to its diplomacy in the first North Korean nuclear crisis of 1993–94, Japan has

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been increasingly assertive in its respective policies toward North Korea.44 Because of its economic power, Japan carries enormous weight in the prospects for full engagement. On the one hand, Tokyo can be a deal maker if it prioritizes normalizing its relations with North Korea, hoping to take advantage of a big deal struck between the United States and North Korea. On the other hand, Tokyo can be a deal breaker if Japan adamantly insists on tying the abduction issue with the nuclear issue and refuses to participate actively in financing the deal between the United States and North Korea.45 Resolving financial difficulties in a full engagement with North Korea critically depends on Japan’s prerogatives. Lastly, full engagement with North Korea might provoke China and alienate Japan, but these issues are largely manageable. China regards preventing both a sudden collapse of North Korea and a large-scale military conflict on the Korean Peninsula as top priorities. China appears to have accepted a world in which North Korea’s possession of primitive nuclear capability is fait accompli, so long as the North neither pursues full-fledged nuclear capability nor engages in proliferation.46 These are substantial strategic interests for China to accept in exchange for an increased U.S. presence in the northern part of the Korean Peninsula. On balance, regional dynamics are not prohibitively hostile to a full-engagement strategy toward North Korea. Full engagement may not be free of kinks, but managed properly and with patience, it could help foster a big deal between the United States and North Korea. Prospects for a Full Engagement with North Korea Aside from the theoretical imperative for a full-engagement strategy, severe obstacles exist for the U.S. government if it ever attempts to base its default North Korea policy on this strategy. On logical and historical grounds, a full-engagement strategy may be a sound course of action. But at a practical level, it is a political choice that is very hard to implement. It is questionable whether adopting a full-engagement strategy would be politically feasible for either the Bush administration or its successor. First, the context of DPRK-U.S. negotiations has become more problematic than it was during the first nuclear crisis. During the past six years, the two countries’ mutual distrust and hostility has only grown deeper. For the United States, North Korea is no longer a potential nuclear threat but a totalitarian regime actually in possession of tested nuclear capability. Second, there are numerous ongoing issues and numerous new ones that have the potential to derail negotiations. The two countries still need to address the broad differences between them regarding a number of big issues. These include how to disclose and define uranium enrichment programs in North Korea, what is to be done with the weapons-grade plutonium

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already in North Korean possession, and what kind of official steps the United States will take to assure North Korea of its national security. In addition, concern about North Korean nuclear proliferation was heightened by U.S. intelligence reports that hinted at the existence of a clandestine uranium-enrichment program and North Korea’s possible connections with Pakistan and Syria. As illustrated by the assiduous Congressional demand for the White House to report on the allegations about North Korea in April 2008, internal debate within the United States on this prospect is very contentious, and it remains unclear how far the United States will inflame the controversy over a possible link between Damascus and Pyongyang in relation to the potential transfer of nuclear technology, material, and knowledge.47 Third, and finally, there is danger that either Washington or Pyongyang could still be wrongfully accused of breaching the pacts, no matter how faithfully the two governments fulfill their end of the initial bargains set by the Early Harvest approach. For instance, investment by some U.S. corporations in North Korea may remain miniscule even after the U.S. government lifts economic sanctions. The heads of large private companies who were part of the South Korean delegation to the second inter-Korean summit in Pyongyang in October 2007 held a negative view of the Roh government’s promise to aggressively undertake new economic cooperation projects. Citing a “significant absence of North Korea’s readiness for economic cooperation,” these companies disclosed their deep reservations regarding oil exploration and mining projects, shipbuilding, and construction of another special industrial complex at the city of Haeju.48 At the same time, President Roh’s post-summit interview revealed that the North Korean elite, including Kim Jong Il and Kim Young Nam, remain deeply wary of the political effect of economic reforms and liberalization on the regime’s stability.49 Judging from these observations, it is unlikely that U.S. corporations will consider a slightly open North Korea an attractive business opportunity because of low profitability and the regime’s guarded attitude toward foreign elements. If the outcome that follows any termination of U.S.-led economic sanctions fails to satisfy the North Korean government, its suspicion that the United States is still conspiring to suffocate the regime may gain traction, a situation that fuels Pyongyang’s obsession with maintaining an independent nuclear capability. Conversely, the Barack Obama administration inherited the burden of moving nuclear diplomacy beyond the declarations and the disablement to which the North has acceded. Any resistance or additional demands made by Pyongyang regarding movement toward the next round of negotiations for concluding a big deal will instantly push the new administration back to the logic of anticipatory breach, especially if the new president feels the

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need to burnish his or her foreign policy credentials by getting tough on Iran or North Korea. Should any of the presidential candidates who were painted by their opponents as “the weak reed who wants to cozy up to dictators” get elected, there would be pressure to play tough on proliferation threats.50 Other candidates, given their lack of attention on the North Korean issue in their election platforms, may simply dismiss the need to urgently seek a big deal with nuclear North Korea. In turn, lack of progress in nuclear talks will frustrate Pyongyang and lead it to seek respect and attention, the implications of which were made dangerously clear with the 1998 missile launches and the 2006 nuclear test. The second inter-Korean summit in October 2007 illustrated the chasm between the two Koreas and the Bush administration regarding how to proceed toward the conclusion of a big deal. At the summit, the head of each Korean state pressed for international support for a peace treaty officially ending the Korean War. Such a gesture proves once again how deeply concerned they are with winning irrevocable assurances from the United States that military options are now off the table. On the other hand, President Bush reacted to the two Koreas’ joint action by resolutely denying the possibility of reaching any peace agreement prior to denuclearization.51 Such contrast between the two Koreas and the United States presages a long and tumultuous path for all parties involved in the Six-Party Talks. The shadow of mutual anticipatory breach is still very real for both the United States and North Korea. These two sides would have strong reasons to assume that the other has no intention of fulfilling its agreements and therefore to shape policy around that assumption. Neither side wants to look like the dupe in a nuclear standoff.

CONCLUSION A “big deal” is possible between Washington and Pyongyang. In this deal, Washington would get what it wants: a disarmed North Korea. And in this same deal, Pyongyang would get what it wants: a formal end to the Korean War through normalized relations with the United States. But the deal will occur only through a full-engagement strategy. This chapter proposes that the United States must adopt a full-engagement strategy and make a grand bargain with North Korea if it is to achieve complete denuclearization peacefully. In no way do I make this proposal to minimize the major achievement that North Korea’s decision to declare and to disable its nuclear capability constitutes for the Bush administration’s new North Korea policy. My proposal concerns chiefly the limitedness that may characterize the current staged-engagement strategy toward the North; that is, I question how effectively the strategy can convince North Korea that abandoning nuclear

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weapons is an absolute precondition for a big deal with the United States. I also caution that the United States needs to make sure to persuade South Korea to move to the U.S. side when the negotiations deal with the issue of nuclear disarmament of the North. A staged-engagement strategy is unlikely to help the United States indisputably determine whether South Korea is genuinely interested in a nuclear-free Korean Peninsula, as it said it has been, or whether it never was and never will be. In practical terms, any diplomatic effort to deal with nuclear North Korea is likely to meet huge resistance as soon as North Korea has agreed not to transfer its nuclear capabilities and to partially dismantle its nuclear facilities and the United States waives North Korea from its terrorism list and the Trading with the Enemy Act. The best outcome that the current engagement strategy would likely yield is that Pyongyang would agree to include its clandestine uranium-enrichment programs in the “complete and correct” declaration. It would cost Pyongyang little to give up the program, which many analysts suspect is very much in an elementary research and development stage. But the concession could be regarded as a huge symbolic prize for Washington, a possibility that Pyongyang may be tempted to exploit.52 The choice that the United States now faces—between a stagedengagement strategy and a full-engagement strategy—will depend on the two strategies’ prospective merits, including the feasibility of their implementation. Domestic politics and regional dynamics create rare opportunities and significant constraints that the United States must deal with when implementing the full-engagement strategy. But without reaping a final harvest, there is no chance that current U.S. engagement strategy will be considered a great nonproliferation victory.

NOTES 1. Bill Powell, “North Korea Takes the Bait,” Time, February 15, 2007. http:// www.time.com/time/magazine/article/0,9171,1590171,00.html. 2. “The Pyongyang Precedent,” The Wall Street Journal, October 5, 2007, A16. 3. James T. Laney and Jason Shaplen, “Disarming North Korea,” Author Update of James T. Laney and Jason Shaplen, “How to Deal with North Korea.” Foreign Affairs 82 (March/April 2003, 16–30): February 21, 2007. http://www. foreignaffairs.org/20070221faupdate86176/james-t-laney-jason-t-shaplen/disarmingnorth-korea. 4. Victor D. Cha and David C. Kang, Nuclear North Korea: A Debate on Engagement Strategies (New York: Columbia University Press, 2003), 4. 5. Meredith Woo-Cumings, “Unilateralism and Its Discontents: The Passing of the Cold War Alliance and Changing Public Opinion in the Republic of Korea,” in Korean Attitudes toward the United States: Changing Dynamics, ed. David I. Steinberg (Armonk, NY: M. E. Sharpe, 2005), 46–55.

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6. For the content of the Initial Actions for the Implementation of the Joint Statement, see http://www.state.gov/r/pa/prs/ps/2007/february/80479.htm. 7. “U.S. Ready to Ease Sanctions on N. Korea,” Washington Post, April 11, 2008. 8. Winston Lord and Leslie H. Gelb, “Yielding to N. Korea Too Often,” Washington Post, April 26, 2008; “North Korea Documents Make Debut, at a Distance.” New York Times, May 14, 2008. 9. Interviews with officials in the foreign ministry of South Korea and editors of major newspaper companies who participated in the post-summit meeting with Chairman Kim Jong Il in August 2000, Seoul, South Korea, June 25–July 11, 2007. 10. Michael Mazarr, North Korea and the Bomb (New York: St. Martin’s Press, 1995), 118; James T. Laney and Jason T. Shaplen, “How to Deal with North Korea,” Foreign Affairs 82, no. 2 (March/April 2003): 18–19; Gilbert Rozman, “Japan’s North Korean Initiative and U.S.-Japanese Relations,” Orbis 47, no. 3 (Summer 2003): 527–39. 11. R. Nicholas Burns, Under Secretary for Political Affairs, U.S. Department of State, “U.S. Policy toward North Korea,” Testimony to the House International Relations Committee, Washington, DC, November 16, 2006, http://www.state.gov/ p/us/rm/2006/76178.htm. 12. See Burns, “U.S. Policy toward North Korea”; Victor D. Cha, “Korea’s Place in the Axis,” Foreign Affairs 81, no. 3 (May/June 2002): 79–92; “Hawk Engagement and Preventive Defense on the Korean Peninsula,” International Security 27, no. 1 (Summer 2002): 40–78. 13. Hakjoon Kim, “Sunshine or Thunder? Tension between the Kim and Bush Administrations in Historical Perspective,” Korea Observer 34, no. 1 (Spring 2003): 33. 14. Joong-ang Ilbo, October 11, 2006, http://article.joins.com/article/article. asp?total_id=2909805; Joong-ang Ilbo, November 20 and 21, 2006, http//article.joins. com/article/article.asp?total_id=2514489. For a critical opinion of the effectiveness of the PSI, see Gerald Geunwook Lee, “A Phantom Menace: Proliferation by North Korea and Cases against the PSI,” The Korean Journal of Defense Analysis 18, no. 4 (Winter 2006): 51–71. 15. Interview with Chong-Sik Lee, March 12, 2003, Seoul, Korea. 16. Don Oberdorfer, The Two Koreas: A Contemporary History (New York: Basic Books, 2001), 69–73. 17. Joong-ang Ilbo, February 9, 2003. Such a fear was heightened earlier, in 1994, when South Korea learned that the Clinton administration was on the verge of launching a preemptive strike against the Yongbyun nuclear facilities without consultation with Seoul. 18. “Tokcho˘m int’o˘byu: Mikukpangbu Asia·t’aep’yo˘ngnyang ch’onggwal Richard Lawless ka palkin Han-Mi tongmaeng u˘i chinsil” (Interview: Richard Lawless on the Reality of the U.S.-ROK Alliance), Sin Dong-a, no. 575 (August 2007): 82–104. 19. Transaction Network Services (TNS) National Survey of seven hundred respondents with 95 percent confidence, with a margin of error of 3.7 percentage points, February 15, 2005.

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20. Nicholas Eberstadt, “North Korean Nuclear Question and U.S.-Korea Alliance: Some Implications of Future ‘Scenarios,’ ” Paper for the School of Advanced International Studies (SAIS)-Korea University Conference on the U.S.-Korea Alliance and the Future of Northeast Asia, Washington, DC, December 6–7, 2004, 1–19, esp. 3. 21. Cha and Kang, Nuclear North Korea, 171. 22. Nicholas Eberstadt, “Our Other Korea Problem,” National Interest 69 (Fall 2002): 113; Ah-Young Kim, “Old Waves or a New Surge? Anti-Americanism from a South Korean Perspective,” Pacific Forum CSIS Report (2003), 8–14. 23. Charles L. Pritchard, Failed Diplomacy: The Tragic Story of How North Korea Got the Bomb (Washington DC: The Brookings Institution, 2007), 134–35. 24. Victor D. Cha, “Abandonment, Entrapment, and Neoclassical Realism in Asia: The United States, Japan, and Korea,” International Studies Quarterly 44, no. 2 (2000): 261–91; Glenn Snyder, “The Security Dilemma in Alliance Politics,” World Politics 36, no. 4 (1984): 461–96. 25. For discussion of some controversial bilateral issues in 2003–04, see Youngshik Bong and Katharine H. S. Moon, “Rethinking Young Anti-Americanism in South Korea,” in The Anti-American Century, ed. Ivan Krastev and Alan McPherson, 90–101 (Budapest: Central European University Press, 2007). See also Chosun Ilbo (English edition), “Oprah Winfrey’s Negative Remarks about Korean Women Spark Storm,” October 15, 2004. http://news.kbs.co.kr/ispecial/ps00204.php?id=512. 26. Chang Hun Oh and Celeste Arrington, “Democratization and Changing Anti-American Sentiments in South Korea,” Asian Survey 47, no. 2 (March/April, 2007): 327–50. 27. Haesook Chae, “Understanding Anti-Americanism among South Korean College Students,” International Journal of Korean Studies 9, no. 1 (Spring/Summer 2005): 107–26. 28. Only 4 percent of South Koreans in their twenties and 6 percent in their thirties watched the first day of the summit in Pyongyang. The figures are far lower than the average rates for those in their fifties (19 percent) and sixties (54 percent). Joong-ang Ilbo, October 3, 2002. 29. Of South Koreans, 88.3 percent viewed the U.S. war in Iraq as an “invasion” and 4.7 percent considered it a “just war” in October 2003. However, 72.2 percent said that their national interests required South Korea to participate in the U.S.-led alliance. Yonhap, October 8, 2003. In his April 2004 speech to a national audience on the government’s decision to send troops to Iraq, President Roh reiterated the same pragmatic principle: “Are we going to risk a war by being different from the United States? We must be different on some issues but also be able to coordinate our differences to prevent the crisis of war.” Joong-ang Ilbo, April 17, 2004. 30. According to a survey, 78.1 percent of Koreans in their twenties and 84.3 percent of those in the thirties agree that the presence of U.S. forces in South Korea is “important for the security of South Korea.” Dong-a Ilbo, April 1, 2003. 31. Chang-Hee Nam, “Relocating the U.S. Forces in South Korea: Strained Alliance, Emerging Partnership in the Changing Defense Posture,” Asian Survey 46, no. 4 (July/August 2006): 615–31. 32. Joong-ang Ilbo, August 27, 2006, http://article.joins.com/article/article. asp?total_id=2429404. The four preconditions are: preserving the U.S.-South Korean

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Mutual Security Treaty; keeping the USFK stationed in the South and guaranteeing any needed reinforcements; sharing USFK reconnaissance information with the South Korean military; and maintaining joint deterrence capability and readiness on the Korean Peninsula. Joong-ang Ilbo, October 29, 2006. http://article.joins.com/ article/article.asp?total_id=2490425. 33. Joong-ang Ilbo, September 14, 2006. http://article.joins.com/article/article. asp?total_id=2448083. 34. East Asia Institute (EAI)-Joong-ang Ilbo Survey, “Han-Mi kwan’gye yo˘ron chosa” (Public Opinion of South Korea-U.S. Relations), No. 1 (December 2002) and No. 2 (June 2003). http://www.eai.or.kr/korean/archive/feq/KU_01.pdf. 35. Nicholas Eberstadt, Aaron L. Friedberg, and Christopher Griffin, “Toward an America-Free Korea,” The Wall Street Journal, October 6, 2007, A21. 36. “South Korea’s President Looks to Repair U.S. Ties,” New York Times, April 11, 2008. 37. “South Korean President Pledges Pragmatism,” New York Time, February 26, 2008. President Lee declared what he called a “Denuclearization-Opening-3,000” program toward North Korea. The program stipulates that, once North Korea gives up its nuclear program and chooses reforms and openness, South Korea will provide massive economic aid and know-how to help North Korea raise its annual per capita income to $3,000 from about $900 within ten years. 38. “South Korean President Discusses U.S.-South Korea Relations: President Lee Myung-bak Takes Questions From Washington Post Editors and Reporters,” Washington Post, April 17, 2008. 39. John Lewis Gaddis, Strategies of Containment: A Critical Appraisal of American National Security Policy during the Cold War, 2nd edition (New York: Oxford University Press, 2005). 40. Chung-in Moon and Yongho Kim, “The Future of the North Korean System,” in The North Korean System in the Post-Cold War Era, ed. Samuel Kim (New York: Palgrave, 2001), 221–58. 41. Christopher D. Hale, “Real Reform in North Korea? The Aftermath of the July 2002 Economic Measures,” Asian Survey 45, no. 6 (November/December 2005): 823–42. 42. Cha and Kang, Nuclear North Korea, 102; Chung-in Moon, “Managing Collateral Catastrophe: Rationale and Preconditions for International Economic Support for North Korea,” in A New International Engagement Framework for North Korea? Contending Perspectives, ed. Choong-yong Ahn, Nicholas Eberstadt, and Young-sun Lee (Washington, DC: Korea Economic Institute, 2004), 117–58. 43. Michael O’Hanlon and Mike Mochizuki, Crisis on the Korean Peninsula: How to Deal with a Nuclear North Korea (New York: McGraw-Hill, 2003). 44. Linus Hagstrom, “The Dogma of Japanese Insignificance: The Academic Discourse on North Korea Policy Coordination,” Pacific Affairs 79, no. 3 (Fall 2006): 387–410. 45. In his responses to questions in the Diet, former Prime Minister of Japan Abe Shinzo reiterated that Japan’s policy would link the abduction issue with the improvement of Japan’s economic relations with North Korea: “We must not be isolated and we are not in fact isolated. . . . Other countries understood our decision not to provide oil unless progress is made in the abduction case.” Norimitsu

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Onishi, “South Korea and Japan Split on North Korea Pact,” New York Times, February 15, 2007. 46. Speech by former ROK ambassador to the United States Han Seung-joo, Sigur Center of Asian Studies at George Washington University, April 25, 2007. 47. “U.S. Sees N. Korean Links to Reactor,” New York Times, April 24, 2008; “Bush Administration Releases Images to Bolster Its Claims About Syrian Reactor,” New York Times, April 25, 2008. 48. “Pangbuk kyo˘ngjeindu˘l Puk kyo˘nghyo˘p chunbi mihu˘p” (Business Elite Are Concerned about North Korea’s Readiness), Dong-a Ilbo, October 6, 2007. 49. “No taet’ongnyo˘ng: kaehyo˘k kaebang Pugi araso˘ hal il” (President Roh Said Reform and Opening Is Nobody’s but the North’s Business), Dong-a Ilbo, October 6, 2007. 50. Senator Hillary Rodham Clinton’s vote in October 2007 in support of a confrontational U.S. policy against Iran’s Revolutionary Guard is one example. See Maureen Dowd, “Bomb, Bomb Iran,” New York Times, October 10, 2007, A23. 51. At a joint press conference with President Roh of South Korea, U.S. president Bush tersely responded to Roh’s insistence that the United States clarify its position regarding a potential peace treaty with Pyongyang: “I said it’s up to Kim Jong Il as to whether or not we’re able to sign a peace treaty to end the Korean War. He’s got to get rid of his weapons in a verifiable fashion.” “Nuclear Experts to Inspect Sites in North Korea,” New York Times, September 7, 2007; “No-Bush APEC kongdonghoegyo˘n ‘p’yo˘nghwa hyo˘pcho˘ng’ chuldarigi ohae wa chinsil” (Misunderstanding and Truth about the Tug-of-War on the “Peace Accord” at Roh-Bush APEC Joint Press Conference), Joong-ang Ilbo, September 10, 2007. 52. Selig Harrison, “Did North Korea Cheat?” Foreign Affairs 84, no. 1 (January/February 2005): 99–110; David E. Sanger and William J. Broad, “U.S. Concedes Uncertainty on North Korean Uranium Effort,” New York Times, March 1, 2007; “North Korea Nuclear Talks Face Uncertain Hurdles,” New York Times, September 25, 2007.

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THREE

LOOKING EAST China’s Policy toward the Korean Peninsula Fei-Ling Wang

Rapidly rising in power, China is playing an increasingly active and important role in its neighborhood, especially in East Asia. Beijing’s general policy thrust in the immediately surrounding areas is to seek a “harmonious world” with the measures of mulin (good neighbors) and fulin (enriching the neighbors). This is, arguably, a conformist and peaceful policy that helps to advance China’s ambition of a peaceful rise to becoming a world-class great power.1 A key component of China’s diplomacy in the region is its ties with the two Koreas. Beijing’s policy toward the Korean Peninsula, crucially important to peace and stability in Northeast Asia and illuminating overall Chinese foreign policy, prefers the status quo through engagement while quietly preparing for undesirable developments that may be inevitable; it also brews new demands that are likely to become more noticeable and even challenging as Chinese power grows. So far, Beijing’s effort at engaging North Korea has appeared to be effective in facilitating steps toward a resolution of the nuclear issue and bringing the United States closer to dealing with Pyongyang to stabilize the Peninsula. Overall, Chinese ties with the Koreas have been fundamentally conditioned by the Sino-American relationship that has motivated Beijing to pursue a pro–status quo policy in the region.2

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From Beijing’s point of view, the Korean Peninsula currently offers great strategic maneuverability and enormous economic benefits. North Korea provides a main stage for Beijing’s multilateral diplomacy and is the focal point of the major common interest of denuclearizing the Peninsula that Beijing shares with Washington. South Korea, with its technology and manufacturing industries, has formed an efficient production chain with Chinese labor to power China’s booming exports to the United States; this cooperation is a key ingredient of both Chinese and Korean economic growth. None of China’s other neighbors is so vital to Beijing’s security and economic concerns. Given growing Sino-Korean economic integration and cultural exchange, the recurring historical and territorial disputes, and the complex geopolitical interplay with the two Koreas, Beijing’s strategic thinking shows a great degree of patience and uncertainty, as well as an interesting array of diverse pursuits, highly conditioned by China’s overall strategic consideration of the world and its own domestic needs. In the near term, barring any major changes in the Sino-American relationship and any catastrophic development inside the People’s Republic of China (PRC), China’s policy toward the Korean Peninsula is expected to be stable and conservative: Beijing prefers the continued survival of the Democratic People’s Republic of Korea (DPRK) for its political and strategic needs while developing ever-closer relations with the Republic of Korea (ROK) for important economic interests and geopolitical considerations of cultivating some counterweight to Japan and the United States. Nominally supporting Korean unification, the PRC seeks to maintain the political status quo and denuclearization on the Korean Peninsula: No Nukes, No Unification. The American military presence on the peninsula is now viewed as a dwindling concern to Beijing. However, the uncertainties and complications of Sino-American relations, the Sino-Japanese discord, and the Taiwan issue may develop further to profoundly alter China’s strategic calculation about the Korean Peninsula and hence Beijing’s policy of status quo and denuclearization. While basically successful so far, Beijing may need or be forced to change its Korea policy in the not too distant future. On the one hand, a pro–status quo China could be ready to accept a Seoul-dominated united Korea, even with nuclear capabilities, as long as it is stable and friendly to Beijing, On the other hand, an aggressive exercise of Chinese power could seek to quietly or even overtly establish its own sphere of influence on the peninsula, starting in North Korea, which, in that case, could well become just a pawn on Beijing’s chessboard. To discuss these points, this chapter outlines the basics of China’s foreign policy toward the two Koreas with an emphasis on Beijing’s recent conduct, main concerns, and key constraints. It will first describe the key concerns and constraints in the making of Chinese foreign policy in general: the peculiar incentives in Beijing and the relations China has with

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the United States. In line with its overall objective in diplomacy, Beijing is seeking shared strategic interest with the United States and other major external powers on the Korean Peninsula, amid profound differences and uncertainties. Patient and eyeing the long term, Beijing’s policy toward the Korean Peninsula demonstrates both challenges and opportunities.

INTERNAL CONSTRAINTS: A RISING POWER WITH PECULIAR MOTIVATIONS In the past three decades, the PRC has managed to achieve two seemingly impossible goals: remarkable sociopolitical stability and record-shattering economic growth. After surviving the political turmoil of 1989, the Chinese Communist Party (CCP) perpetuates a monopoly of political power in China with a still poor, albeit improving, record of social liberty and human rights. The Chinese economy has been experiencing a major boom that promises the rise of China as a world-class power in the foreseeable future. China’s Gross Domestic Product (GDP) has grown at the speed of more than 9 percent annually for the past twenty-five years and over 10 percent from 2003 to 2008, becoming the world’s number four or number two (by purchasing power parity) economic power.3 With this impressive record of economic growth, Beijing has successfully justified its one-party authoritarian political system to the Chinese, especially the elites (mainly the politically potent urban population), forming a new ruling alliance and a new developmentalist political consensus that monopolizes political power.4 It seems that political legitimacy can indeed be effectively purchased, at least for the time being. More active Chinese participation in the management of international affairs and a more evenly constructed multipolar world seem to appeal highly to a rising China. Many PRC analysts prefer the country to be, first, given daguo (great power) responsibility in the Asia Pacific region, to ensure a “just and rational” new security order in the region. In pursuit of “enriching the neighbors,” Beijing has indeed effectively purchased great amount of goodwill and legitimacy as well as influence in the region. Its pragmatic attitudes toward territorial and other disputes with its neighbors and its effective control of domestic opinions and voices have also pleased most of the PRC’s neighbors. Beyond that, Beijing hoped to take advantage of the differences between the United States and its allies in Europe by forging more ties between the “rising Asia” and the European Union5—or form a ChinaIndia-Russia alliance to counter the U.S.-EU-Japan dominance.6 In 2005, Beijing made a somewhat surprising move to support New Delhi’s bid for a permanent seat in the UN Security Council while it openly and repeatedly rejected Japan’s similar aspiration.7 Eventually, many in Beijing hope

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that China’s rise will make it a new world leader, able to provide new norms and create a new history for itself and for the world.8 One analyst put the economic reasons for the expansion of Chinese power very bluntly: “China’s sustained development in the future can not be sufficiently supported by (our) domestic resources, we must have the right to share the world’s resources and use it to support China’s development.”9 At one extreme of Chinese strategic views, there is now a powerful attempt to revitalize the Tianxia (under-the-heaven) system, an old Chinese imperial notion that the whole world should be united and governed like an orderly and harmonious family with layers and ranks under one centralized ruler, a benevolent dictator, a “son of heaven” whose rule is based on “earning people’s hearts” with ethics rather than law. Essentially, this would mean that the long stagnation and despotism that marked the Chinese world order in East Asia before the late nineteenth century be repackaged as China’s alternative to the West-dominated, Westphalian system of international relations.10 Yet, the rising Chinese power faces important and rather peculiar concerns and constraints. Internally, Beijing’s top concern in foreign policy remains the preservation of the one-party political system of the CCP. Short of effective political reforms to produce better governance, the necessity for self-preservation remains the top objective for Beijing. Tangible and continued economic prosperity has become the avenue to reach that goal; international acceptance and approval have become major sources of legitimacy for the CCP at home, while nationalistic demands for more Chinese power and prestige have presented Beijing with an additional opportunity for and a new challenge to its political preservation. Together, a peculiar incentive structure of political preservation, economic prosperity, and national power/ prestige now fundamentally motivates China’s foreign policy. All these have indeed made the rising “superpower” of the PRC rather fragile inside.11 For the CCP’s political survival, China’s foreign policy remains basically conservative, pragmatic, pro-status quo, and reactive. External respect itself has become a leading source of political legitimacy, hence Beijing cultivates hard its peaceful and cooperative posture in international relations. But China’s conservative foreign policy for political preservation and its drive for economic prosperity have combined to generate fuel for a rising sense of Chinese nationalism that necessitates assertive and even aggressive actions on the international stage. Rapid economic growth and technological advances have powered nationalistic sentiments and demands, but Beijing’s preservation-oriented conservative foreign policy has frustrated many Chinese nationalists. The pressure to exercise greater power in international relations is creeping up inside China as an increasingly strong factor to be reckoned with. Although the official line in Beijing remains mild and benign “peaceful development,” the new and more majestic idea of “peaceful rise” reemerged after the power transition from Jiang Zemin to Hu Jintao.12

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Practically, China has developed an unprecedented dependence on international trade. In 2004, 20 percent to one-quarter of China’s GDP was directly related to foreign trade; and China increasingly imports more oil from the troubled region of the Middle East.13 Economic globalization, hence, appears to Beijing a worthwhile gamble. A senior CCP official argues that as long as China seizes the currently available “development opportunity that presents itself only once in a thousand years so to ride the tide to catch the express train of economic globalization, we will realize our ideals of having a frog-leap development and having a powerful nation and rich people.”14 For that, China clearly needs to be part of the existing international economic institutions, trade aggressively with everyone, and, especially, maintain a good relationship with the developed nations. So Beijing has been interested in the construction of a free trade zone that includes basically all of East and Southeast Asia, the so-called “ten plus three” scheme. Starting in 2004, Beijing has joined the meeting of financial ministers and central bank governors of the G-7 countries.15 It seems to the CCP that selective embrace of globalization pays and political legitimacy can be purchased internationally as well. Guided by the incentive structure of Preservation, Prosperity, and Power (3-P),16 Beijing believes that the post–September 11 War on Terror and the U.S. invasion and occupation of Iraq have provided a “period of strategic opportunity” for the CCP to concentrate on its strategy of stability and development in the first two decades of this century.17 A continuation of the currently stable U.S.-China relationship and a peaceful international environment remains a key objective.18 It is worthwhile to note that many Chinese analysts are now increasingly candid about the inadequacy of Chinese power, primarily defined as China’s lack of military capabilities. While the PLA may be capable of safeguarding the CCP-PRC political system against foreseeable domestic threats, it is clearly underequipped and poorly trained to carry out missions outside of China’s borders, with perhaps the exception of nuclear capable land- and sea-based ballistic missiles.19 Consequently, increasingly many now in the PRC are calling for the steady buildup and exercise of China’s military power, to seek the appropriate Chinese “sphere of influence” and “regain” China’s rightful but deprived greatness and influence.20 Leading Chinese economists also argue for a “massive increase of military spending” by as much as 50 percent in the near future so to make China a world class power by the mid-twenty-first century.21

EXTERNAL CONSTRAINTS: U.S.-CHINA RELATIONS In the late 2000s, the basics of Sino-American relations, widely believed to be the most important bilateral relationship to both countries, remained stable as the second Bush administration openly sought to build “a candid,

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cooperative and constructive relationship with China that embraces our common interests.” The Obama administration, so far, has followed the same cooperative and pragmatic engagement policy, especially in the aftermath of the 2008 financial crisis. However, as then-Secretary of State Condoleezza Rice told the U.S. Senate, there are “considerable differences about values” between Washington and Beijing.22 Secretary of State Hillary Clinton, under the pragmatic doctrine of “smart power,” has also been quite blunt about such differences, especially concerning human rights in China. Indeed, there are several explosive mines that could seriously damage the U.S.-China relationship, among which the Taiwan issue is a major one.23 Stability with considerable uncertainties that have great consequences seems to be the proper characterization of the current U.S.-PRC relationship, which serves as the most powerful external constraint on Chinese foreign policy, especially on the Korean Peninsula. Furthermore, rising international scrutiny and suspicion have led to concrete moves by some leading powers to hedge against rising Chinese power. Apprehension and even fear about the rising dragon is seen in China’s neighboring areas.24 The latest of great powers’ hedging efforts is the formation of the quasi-military alliance among the United States, Japan, Australia, and India.25 With their similarities in sociopolitical values and their location and resources, the emerging four-nation concert, and its vast networks of allies throughout the region, could serve as a serious counterforce to China’s ambition and expansion, as well as impacting CCP’s political survival. Motivated by its 3-P objectives, outlined above, Beijing has been seeking to avoid direct conflicts with the United States, at least for now, by pursuing a conservative, pro–status quo, and risk-averse policy that is quite unusual for a rapidly rising power. Beijing appears to be betting its future on its efforts within the current international political and economic system and its focused program of economic development by taking advantage of Western capital, technology, and markets to make the PRC an equal to the West. In addition, after more than two decades of opening to the outside world (mainly the West) and as new Chinese élites who tend to have great vested interest in a good relationship with the United States increase in number, China is now increasingly and genuinely developing some shared values, interests, and even perspectives with reigning Western powers.26 The United States, as the lone superpower that can realistically undermine or accept, and hence legitimize, Beijing’s political system and help or hinder Beijing’s economic and foreign pursuits, remains greatly influential in the PRC, and Beijing shows great deference to American power and leadership.27 The United States is viewed in Beijing as “the largest external factor affecting China’s national reunification and national security.”28 Finding the current status quo in their interest, Washington and Beijing have developed some shared strategic interests in the global war on terrorism and

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in handling regional or UN-related issues, such as the control of weapons of mass destruction. Nuclear armed and deemed by many to be condemned into a hopeless course of collision between the reigning power and the rising power, America and China appear to be surprisingly peaceful and cooperative with each other, so far.29 A de facto alliance of antiterrorism and antirecession now exists between Beijing and Washington. One authoritative analyst wrote to educate PRC officials that, although the United States has not changed its policy of concurrently engaging and containing China after September 11, [r]ight now, the tip of the U.S. spear is not all pointed at China. This brings a rare opportunity for us to concentrate on economic construction and create beneficial international and neighboring environments. We must seize upon this rare opportunity after more than ten years since the end of the Cold War. [We] should not stand out diplomatically so to avoid drawing fires to ourselves; instead, [we] should concentrate on doing a good job internally, speed up economic construction, accelerate development, to strive for a larger elevation of China’s comprehensive national power in the first ten to twenty years of the new century.30 Yet, as the CCP’s foreign policy guru Qian Qichen vented, Beijing harbors deep resentment toward American hegemony.31 There are significant uncertainties between Beijing and Washington that may make the U.S.-China relationship just another repeat of the tragic history of great power politics. While not unavoidable yet, a more confrontational crossPacific relationship will necessarily produce profound shocks and costs to the whole world, especially the Korean Peninsula. American criticism of China in the areas of Beijing’s human rights record, however, is largely rhetorical, so far. To the dismay of Chinese political exiles as well as opposition groups such as the Falun Gong, American ideological criticisms of Beijing are mainly for domestic consumption and are unlikely to lead to concrete actions against China beyond words. The more urgent, real American need is to get China to cooperate on fighting international terrorism and resolving the North Korean nuclear issue. Making the PRC President Hu Jintao the first peer he met at the APEC Summit Meeting in September 2007, U.S. president Bush told reporters that despite the many differences with China, Washington especially appreciated the Chinese cooperation on the DPRK nuclear issue.32 Out of all the uncertainties between the United States and China, the most explosive problem remains the Taiwan issue. Taiwan, a de facto independent entity that seeks a full or de jure independence, is of core interest to China as it directly affects the CCP’s political preservation, China’s

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economic prosperity, national power, and prestige. No Chinese ruler, communist or not, can afford to “let Taiwan go” without risking the collapse of his own regime. Wary of the cost of “swallowing” a democratic Taiwan, which will pose a great threat to the CCP’s one-party political monopoly, Beijing hence sincerely prefers the status quo to be stabilized with the nominal reunification of “one country, two systems” for its own domestic consumption. But Beijing is nonetheless also preparing to fight a war with even the United States to keep Taiwan within a “one-China” framework. Regarding Taiwanese independence, one detects very little difference in attitude among Chinese élites, street people, and even political exiles. However, by 2009, the tensions in the Taiwan Strait have calmed down considerably. The defiant Taiwanese president Chen Shui-Bian failed to seek a provocative referendum on Taiwan’s application for United Nations membership in May 2008 and has been disgraced and discredited by his own legal problems since then. The new Taiwanese president Ma Ying-Jeou has successfully restored the framework of “one China” and actively improved relations, especially economic ties, with Beijing. A strong show of consensus between Beijing and Washington in maintaining the status quo in the Taiwan Strait seems to have worked. It has been very comforting for Beijing to see President Bush, who promised in 2001 that he would do everything to protect Taiwan, in 2007 publicly shun the Taiwanese leaders for their push for formal independence.33 Will Beijing trade the DPRK for Taiwan? Chinese officials and analysts seem to see the futility and danger of making such a connection. Nonetheless, one hears frequently from Beijing comments such as this: “Of course, the American strategy towards China [mainly on the Taiwan issue] strongly shapes the Chinese attitude [toward the Korean Peninsula].”34

BEIJING AND THE TWO KOREAS: A SKETCH More than a half-century after the Korean War, the major powers in the region, the United States, China, Japan, and Russia, continue to hold the key to the political future of the Korean Peninsula. Currently, China and the United States have demonstrated a shared interest in peace and stability in Northeast Asia through maintaining the status quo and pursuing denuclearization on the Korean Peninsula. After “joining the great powers” on the question of how to deal with the nuclear ambitions of the DPRK and on the Korean unification issue in general in the 1990s,35 the PRC has continued to play its happy role of hosting and participating in the Six-Party Talks, which seems to help stabilize the situation. This position and role well fit Beijing’s overall diplomatic objectives as analyzed earlier. An analyst in Beijing gladly and candidly concluded:

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The future new international political order in Northeast Asia depends on the relations among the four major powers: the U.S., Japan, China, and Russia. The interests of the four major powers will affect the issue of Korean reunification. Korean reunification will be decided by inter-Korean factors under the influence of the political attitudes of the four major powers.36 Ever since the demise of the Soviet Union, Beijing has pursued a separate relationship with the two Koreas by viewing them as co-surviving entities and has attempted to develop good but very different ties with each. With skillful management, highly pragmatic policies, and huge investment, China now is the only outside power that enjoys a close and amicable relationship with both Koreas at the same time, while mainly paying lip service to the course of Korean unification. Over the objections of Pyongyang, China established full ties with South Korea in 1992, without first securing cross-recognition of the DPRK by the U.S. and Japan. There has been a phenomenal, explosive growth of economic exchange between the ROK and the PRC ever since. Trade grew at an astonishing speed of 40 percent annually in the 1990s. By 2004, the PRC became South Korea’s largest trade partner and ROK became China’s third largest.37 Sino-South Korean exchanges of students and culture products grew at a breathtaking pace, to make the ROK a major source of education, cultural influence, and even culinary taste for millions of Chinese. Every week, there are about eight hundred flights between the two countries (versus only about three hundred between the ROK and the United States). More than thirty thousand Chinese students now study in the ROK while a similar number of ROK students are studying the PRC. At the end of 2004, China opened a cultural center in Seoul, its sixth in the world and first in Asia.38 Dozens of Korean companies now provide up to 70 percent of the entire online electronic gaming industry in China. One study reports that Korean snack food, Chocopie, now occupies about 40 percent of China’s pie industry. A hallyu (Korean trend, meaning fever for Korean culture products) has been developing extensively in China. ROK-made TV programming, movies, and music videos have become a cultural phenomenon in the PRC, so much so that Beijing decided in 2004 to step up its regulation of Korean culture products to protect Chinese “pride.”39 PRC-ROK exchanges have been so significant that Chinese analysts themselves have been openly asserting that the ROK is now economically dependent on the PRC and the two countries have already formed a high degree of economic integration, closer than that in the old tributary days. The “comradeship” between Beijing and Pyongyang has experienced rocky moments in the past two decades as China engaged in its internal

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economic reforms and its process of opening to the outside. The thorniest issue remains the DPRK’s resentment of what it sees as China’s abandonment of North Koreans. However, Beijing has continued its “obligation” to Pyongyang by spending billions of dollars to help the financially troubled DPRK. For example, during one visit to Pyongyang by PRC president Hu Jintao in 2006, Beijing openly pledged US$2 billion in aid to the DPRK, 50 percent more than DPRK’s total export volume in 2005. Beijing is now the major even if not sole supporter of the DPRK’s failed economy and its political regime. More than one-third of DPRK’s exports go to China and more than 42 percent of its imports come from China.40 In fact, Beijing has often served on the international stage as Pyongyang’s agent and protector, even though Pyongyang has been seeking all possible opportunities to make independent deals with the United States and other countries. China’s engagement with North Korea, stable, quiet, and successful as it has been, however, has not produced the kind of closeness and mutual dependence that has now emerged between Seoul and Beijing, despite the professed ideological comradeship. Beijing seems to have noticed clearly that “Pyongyang is trying everything possible to make up with Washington at our expense,”41 but nonetheless has stuck to its engagement with the often annoying DPRK. The most recent example is that Pyongyang seems to have indicated its desire to exclude China from the future peace settlement of the Korean War in the Kim Jong Il and Roh Moo Hyun Joint Declaration on October 4, 2007. The document, very curiously, specified in Item 4 that “[t]he South and the North have also agreed to work together to advance the matter of having the leaders of the three or four parties directly concerned to convene on the Peninsula and declare an end to the war.”42 That statement rightfully prompted speculation (later specifically confirmed by Seoul) that Pyongyang was trying to exclude Beijing.43 While leading Western media did not even pick up that nuanced but unmistaken sign,44 pro-Beijing Web sites quickly geared up to protest it with angry words such as “this is very dangerous” and “China found it totally unacceptable.”45 Displeased but discreetly, however, Beijing still officially welcomed the Kim-Roh Declaration.46

CHINESE OBJECTIVES: NO UNIFICATION AND NO NUKES, FOR NOW Currently, Beijing’s dominant interest is in a peaceful and stable Korean Peninsula, divided or unified, though preferably divided. It is also strongly interested in seeing the peninsula free of nuclear weapons.47 To avoid the entanglement and shocks at a time when Beijing is worrying about its own political stability and desires to avoid conflict with the United States, China is happy to play a passive, arguably indispensable, role in dealing with the

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North Korean nuclear program and the process of Korean reunification. While openly professing its preference that the Korean Peninsula should remain nuclear-free, Beijing insists that the United States should not use that issue to destroy the DPRK or cause a military confrontation in Northeast Asia. “After all,” a PRC scholar wrote in mid-2005, “DPRK’s nuclear program imposes a threat to the U.S., not to China.”48 The PRC now exhibits a clear ambivalence toward the unification of Korea: a unified Korea might create stability and peace on the peninsula over the long run, and might eliminate the existence of external military and political forces in the region; a united and stronger Korea would likely serve as an important force countering Japan in East Asia—to constitute the new multipolar structure desired by Beijing; Korean reunification also echoes the similar desire China has for Taiwan. However, Beijing has a strong sense of uncertainty and serious reservations about Korean reunification. A military alliance between a united and perhaps nationalistic Korea and the United States clearly makes Beijing uncomfortable. The following official statement by the PRC a decade ago still holds true today. China takes maintaining peace and stability on the peninsula as the fundamental principle in its handling of peninsula affairs. . . . China has dedicated itself to maintaining peace and stability there, endorsing the improvement of relations between the North and South of Korea and supporting an independent and peaceful reunification.49 Practically, China is likely to continue its active role as a good host to the Six-Party Talks aiming at the control, if not resolution, of the Korean nuclear issue, and tries hard to give it a good spin every time. It appears to be in Beijing’s interest to exert more pressure on Pyongyang to have a realistic and timely peaceful end to the U.S.-DPRK dispute over Pyongyang’s nuclear ambition but secure the survival of the DPRK,50 before the United States shifts its full attention to Northeast Asia after pulling out of the quagmire of Iraq. To have the whole weight of a freedom-promoting and tyranny-fighting America concentrated on its border area is not in the CCP’s core interests. Moreover, an acute and prolonged DPRK nuclear dispute has already given Tokyo the reason and context for its resurgence in military and political capabilities. Thus, instead of just blaming the United States for the deadlock of the Six-Party Talks, Beijing frequently uses “the mistrust between the DPRK and the United States” as the official explanation,51 a coded criticism directed against Pyongyang. Finally, the DPRK’s testing of nuclear devices in 2006 has been viewed by Beijing with great displeasure.52 It seems to have delayed and threatens

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to derail Chinese plans. The recent moves by Tokyo on the way toward its so-called political and military “normalization,” such as amending Japan’s peace constitution and rearming itself, and the prospects of a united and nuclear capable Korea have seriously alarmed Beijing. So much so that Beijing, for the first time, used very harsh language to publicly criticize its “comrades” in Pyongyang and put into place some sanctions against the DPRK for “not listening to our advice.”53 No nukes on the Korean Peninsula is indeed a shared interest with the United States; no unification of the Koreas and no confrontation with the United State on the peninsula seem to be Beijing’s higher goal, in the name of stability and peace. For that, Beijing is learning from the United States what its analysts have called a “dual strategy of coaxing and coercing” in carrying out its Korea policy.54 One PRC scholar candidly described the “dilemmas” Beijing now faces in dealing with the North Korean nuclear issue: It has strong concerns over the consequence of a nuclear Korea and beyond (“China worries about Japan’s nuclear capability more than North Korea’s”); it also clearly opposes the use of force on the Korean Peninsula by the United States. Furthermore, Beijing is obviously not very happy with Pyongyang on many issues and actions, as few in China “have good feelings toward North Korea” and “huge distrust exists between China and North Korea . . . and North Korea will remain suspicious of China’s intentions”; yet it earnestly wants to preserve the DPRK regime. In the final analysis, “what China worries about the most is that the U.S. will help Japan and Taiwan to build up theater missile defense systems using the excuse of the North Korean nuclear threat.” Hence, Beijing worries about being “used” by the United States and seeks low-key efforts first to maintain the status quo and then to address the DPRK nuclear program peacefully, so to escape from the dilemma and the “American trap.”55 There are obvious limits to how far a multilateral relationship in Northeast Asia can go. Beijing thus continues to watch attentively the U.S. policy and action in the region, among which a key aspect is the U.S.-ROK military alliance.56 The recent redeployment of U.S. forces in Korea has been interpreted by some in Beijing as an innovative use of the U.S.-ROK alliance that may have implications for Taiwan and elsewhere in the region. The popular belief, official announcements, and actions in Tokyo treating China and the DPRK as the two major security threats to Japan may have caused Beijing to ponder in considerable displeasure, and to feel hurt at being viewed in the same light as Pyongyang, an international outcast, by the Japanese.57 The PRC Foreign Ministry spokeswoman called the Japanese concerns hyped and objectionable; and in turn accused the Japanese of “affronting China’s sovereignty and territory integrity.”58

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As China grows stronger and more confident, especially when the need to preserve a CCP one-party regime becomes less pressing, Beijing may conceivably develop different views and policies. In practice, it may worry much less about the possible destabilizing effect Korean reunification could produce. The sine qua non that may change Beijing’s views and policies remains the overall state of Sino-American relations and the status of China’s own reunification with Taiwan. If Washington and Beijing are on good terms, China makes satisfactory progress in its own reunification effort with Taiwan, the U.S.-ROK military alliance fades and even disappears as Korean unification proceeds, and a unified Korea is at least neutral in the major power games in East Asia, Beijing may throw in its weight to facilitate Korean unification.59 Otherwise, China is expected to simply continue to play a passive role and let the United States do the heavy lifting through leading the international effort aimed maintaining the status quo on the Korean Peninsula. Beijing contributes to this effort by supporting the Kim Jong Il regime in the North, and cultivating a good relationship with the South. Beijing also eyes attentively what Washington may do to the DPRK.60 So long as Beijing worries about an American threat to its political stability and even its national security, China’s support for Korean reunification or a U.S.-DPRK relationship is likely to be very limited. Beijing is anxious to see the DPRK on its own feet economically through Chinese-style reform and proactive “help” from the PRC.61 Beijing may even militarily intervene (as some ROK analysts have speculated) to prevent a rapid unification of Korea,62 especially if the U.S. military presence, as viewed by most observers, is to be continued on the peninsula beyond Korean unification, or if Pyongyang and Washington get too close. It will be difficult for Beijing to accept a united Korea (most likely on the ROK terms) with a fully functioning U.S.-ROK military alliance as long as the United States is viewed as a political and ideological challenger to Beijing and an obstacle to China’s own unification effort. The most recent, fairly tense exchanges between Washington and Taipei on the latter’s ambition for legal independence may signal that Washington is aware of the important link between the shared Sino-American interest on the Korean Peninsula and a cooperative management of the Taiwan issue. Some strategic reciprocity with the United States regarding the Korean Peninsula and Taiwan is an idea not that far-fetched. If Washington were willing to help more to preserve the status quo in the Taiwan Strait, as it has been signaling since the spring of 2004, then Beijing would show willingness to work more actively with the United States to pressure its comrades in Pyongyang concerning the DPRK nuclear programs, especially if it feels that the No Nukes and No Unification objectives on the peninsula are in jeopardy.

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POLICIES AND INTERACTIONS By the late 2000s, as “a responsible great power,” Beijing has kept its Korea policy “nearly unanimous and consistent” for nearly two decades, according to foreign policy analysts in Beijing, in line with its overall foreign policy and reflecting the largely stable U.S.-China relationship. Officially supporting the independent and peaceful unification of Korea in principle, but unsure of its consequences and apprehensive about the possible negative impact associated with a likely continuation of U.S. military forces in a united Korea, China has continued to advocate a “balanced” policy that aims at the preservation of the status quo of political division on the Korean Peninsula. Having been “tricked into entering the Korean War” more than fifty years ago, the PRC harbors strong, though well hidden, resentment and distrust toward Pyongyang. Beijing has felt deep frustration and constant irritation with its Pyongyang comrades, who have not only failed to reform the North Korean economy, but have also attacked China’s unorthodox reforms.63 In recent years, the DPRK has created considerable thorny diplomatic problems for the PRC: repeated North Korean defectors seeking protection in Japanese and ROK diplomatic missions in the PRC have continuously put Beijing in an awkward position. There is also the costly problem of how to repatriate the significant number of North Korean refugees in China’s Northeast, which is creating local problems and tensions with the South Koreans. Beijing is especially unhappy with the DPRK’s use of a nuclear test since it not only threatens China’s core interest of preferring peace and stability in Northeast Asia, but also has already led to Japan’s efforts to rearm itself to be a “normal power” and hence offset rising Chinese power in the region. Unable to control or abandon Pyongyang yet clearly unwilling to fight the United States and its allies for the DPRK, Beijing is caught between two tough choices. The best way out is to muddle through by trying to preserve the status quo and prevent a showdown. Hence, Beijing continues its vital assistance to the DPRK for mainly geopolitical concerns, cloaking it in humanitarian and ideological rhetoric, insisting that it “has always maintained close contacts and cooperation” with the DPRK.64 When Chinese scholars published an article criticizing the North Koreans for their domestic polices and external adventures in September 2004 in the influential Zhanlue yu guanli (Strategy and Management), Beijing ordered the magazine recalled and the journal banned indefinitely.65 In the multilateral negotiations of the Six-Party Talks, Beijing tries hard to be an “honest broker” between the United States and the DPRK and an inconspicuous but consistent agent and spokesman for its North Korean comrades. By late 2007, Beijing’s effort seems to be paying off, as Washington appreciates its help and, arguably,

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rewards it on the Taiwan issue, while the nuclear issue may be going away so as not to give Tokyo reason to rearm further. Great economic and cultural ties with the ROK have affected Beijing’s policy toward the two Koreas greatly. Beijing is now often seen bending over backward to maintain the image of a good relationship with Seoul. Even though it appears that bilateral negotiations and give-and-take between Pyongyang and Washington have been the key to any real progress in addressing the nuclear issue so far, China nonetheless has performed well in mediating between the DPRK and the United States, projecting China’s rising power and prestige, and perpetuating the multilateral forum. China’s positive role has earned itself great credit in South Korea, where growing mistrust and resentment of the United States have powerfully enhanced favorable feelings toward China, clearly rationalized by the massive and highly lucrative China-ROK economic exchange. Through its booming trade with China, the ROK has enjoyed a large trade surplus almost every year, and has accumulated a total of more than $200 billion in foreign currency reserves as a result. In the foreseeable future, the PRC-ROK trade looks vitally profitable to South Korea, although Chinese analysts have started to believe that it will eventually turn around as China catches up with the ROK technologically. “[South] Koreans will soon not be able to make so much money from us so easily,” commented a PRC analyst in private in 2007. “To balance the United States” and “to offer a different kind of new leadership” now seem to be a major strategic attraction of the rising China to many, especially those on the left, in South Korea; Beijing has gladly and consciously marketed a new image, that of a new Chinese power and leadership promising lasting stability, peace, prosperity, and cultural confirmation without the humiliation of the old tributary system or the American imperialist lectures. China has been quite successful on the Korean Peninsula in contrasting itself with the United States as a kind of alternative, a caring but hands-off big brother. Beijing argues that it has had no troops stationed on the peninsula since 1958, unlike the intrusive military presence of the United States. Furthermore, Beijing has been paying close attention to what might irritate the Koreans and sometimes goes the extra mile to satisfy Korean demands over substantive or symbolic issues such as the Chinese translation of the name of Seoul and the effort to hush Chinese voices that speak out about territorial disputes with the Koreans. Beijing has quietly banned the publication of translated Korean novels that “demonize” Chinese emperors; it also quickly closed down Chinese Web sites posting nationalist sentiments against Koreans. However, not everything is rosy in the Sino-Korean relationship. Chinese analysts have long known that Pyongyang harbors strong resentment and suspicions toward Beijing on nationalistic and ideological grounds. The

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Kim-Roh Declaration in October 2007 is yet another piece of evidence. Beijing often indeed treats the DPRK with cynicism and even open contempt. There have also been many frictions and open, serious disputes between the ROK and the PRC, ranging from symbolic issues, such as the characters for Seoul in Chinese,66 to highly emotional disagreements about ancient history, involving the state of Koguryo kingdom, which existed in the northern part of the Korean Peninsula and part of China’s Northeast region between 37 BC and AD 668,67 to growing trade frictions and piracy issues, to the problems associated with massive numbers of Chinese workers in South Korea (many are illegal immigrants), to the Chinese handling of massive numbers of North Korean refugees, to real disputes over territorial claims in the East China Sea and the Yellow Sea and along the Korean-Chinese border.68 In early 2009, a commentary on an influential Chinese Web site even listed South Korea as the fourth most likely warring state with the PRC after India, the United States, and Vietnam and ahead of Japan.69 After Pyongyang’s nuclear test in 2006, the deeply annoyed Beijing reacted unusually harshly toward Kim Jong Il and pressured the DPRK to back down, albeit largely quietly, leading to subsequent progress and moves in 2007 to shut down nuclear facilities in Yongbyon, after American concessions and promises. Relaxed somewhat, leaders and analysts in Beijing now are nonetheless developing a strong sense of inevitability regarding Pyongyang’s likely rapprochement with the United States at China’s expense, the Korean reunification process, and Japan’s rearming and even nuclearization. But for now, for the CCP leadership, the key objective is still how to best preserve itself at home, rather than scoring nationalist victories on the Korean Peninsula. Beijing’s handling of the dispute over the history of Koguryo is quite telling. After the Koreans, in both the ROK and the DPRK, emotionally objected to China’s rewriting its border area history, Beijing managed to reach a five-point agreement with Seoul to effectively shelve the dispute and exclude the Chinese claim from the PRC’s official teaching materials. That conciliatory act barely quieted the Koreans70 and, very interestingly, was never reported to the Chinese public, in line with the PRC policy of keeping factual but sensitive information away from its own people. When two Chinese Web sites published a story about the five-point agreement, they were reported to have been ordered shut down by the PRC police.71 In late 2007, the Chinese effort to revise history, the “Northeastern Project” that ignited the controversy, was declared to be continuing by the project’s leaders because, they said, “this is about the truth of history and about Chinese national interests.” Yet, it now lacks both government funding and publicity inside the PRC. To Koreans, however, the Koguryo dispute has been a “turning point for China-Korea relations” that may signal a more competitive and sensi-

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tive era for the PRC and ROK.72 Other uncertainties and new problems still pop up. On January 18, 2005, a Korean newspaper angrily called for a “second look at China” and questioned Beijing’s stated policy of peace and friendship.73 In return, many Chinese, albeit mostly in private, criticized Koreans for their “narrow nationalism.”74 The long, close, and complicated relationship between China and the two Koreas, especially the confident South Korea, has always been a mixture of emotions and will continue to offer both great opportunities and consequential uncertainties for them and for the United States in the years ahead.75 American media may be correct to conclude that, sometimes, there seems to be a somewhat sophisticated, calculated, even coordinated strategic action by Pyongyang, Beijing, or both together. The DPRK’s open show of defiance may be just a preemptive act to guard against a possible “sell-out” by the PRC. Beijing appears to have recognized that, and quietly shows its unhappiness, as the rather uncharacteristically “free” criticisms of Pyongyang by the Chinese media have demonstrated at times.76 The tortured suspensions and resumptions of the Six-Party Talks constitute rounds of the diplomatic game. Then it takes the U.S. flexibility in dealing with the DPRK bilaterally on what really matters to move the negotiations forward. Having gotten its frozen funds back, Pyongyang finally suspended its nuclear program and opened it to external inspections in the fall of 2007. Beijing’s denuclearization objective may indeed be achievable, while preserving the divided stability of the peninsula, as long as the parties keep their promises.

CHANGING COUNTRY, CHANGING VIEWS China is now both rising and changing. As shown earlier, domestic needs ultimately determine China’s policy toward the Korean Peninsula. Therefore, emerging socioeconomic diversity and the weakening of the PRC political system suggest important new developments to watch.77 In the medium to long term, China’s overall strategic thinking about the Korean Peninsula is likely to include more competing conceptualizations, ranging from a special, even hierarchical Sino-Korean relationship similar to the one that existed before the twentieth century, to coexistence and cooperation resembling regional integration, to forming an East Asian community in the style of the European Union, to a concert of great powers in the region (that may conceivably include a united Korea as a member of the club), to possible competition and rivalry involving disputes over land, resources, and power. At one end of the spectrum, early signs are suggesting that China is quietly preparing for a united, democratic, and even possibly nuclear Korea down the road. A new Korean power that is nationalistic and maintains strong ties with the United States remains a major concern for Beijing. This

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is akin to a worst-case scenario but Beijing may be willing to accept it so long as the CCP’s political preservation is intact. At the other end, while there is little clear-cut evidence yet, there are unofficial arguments for a possible restoration of the old Chinese world order in East Asia, based on a very realist, heavily power-centered calculation about the Korean Peninsula that assumes a Chinese superpower will “naturally and inevitably” draw the two Koreas or a united Korea into its orbit. For now, to be sure, the No Nukes and No Unification dual objective still seems to be the mainstream party line in Beijing. Historically, China’s Korea policy has long been regarded as a “forbidden zone” by the PRC’s foreign policy analysts. As a subfield of Beijing’s policy toward the United States, China’s Korea policy and Korean studies in general have been highly controlled and consistent. Decades of economic reform and development have, however, now led to growing localized and sectarian opinions and preferences about the two Koreas. Divergent players are emerging inside the PRC to affect Chinese strategic thinking on the Korean Peninsula, if still not publicly for the most part. A careful reading of archival materials since the 1990s already shows differences between different government agencies and various regions. Interviews further substantiate that observation. This is especially true regarding the implementation of policies, to the point that there are often complaints about “poor coordination” and the fact that one agency might be creating “unnecessary headaches” for others inside the PRC government in dealings with the two Koreas. The now much-watched Northeastern Project that ignited the emotional reaction in Korea about the history of the Koguryo kingdom is one of those headaches often cited by Chinese interviewees. What is more interesting is that there now seems to be room for internal debate about options in dealing with the Korean Peninsula. There are reported disagreements between the PLA, the foreign ministry, trade officials, and the security apparatus over what to do about “disobedient” and “unappreciative” North Koreans and what should be done to pressure Pyongyang to address the nuclear issue. Senior leaders and analysts also seem to disagree about the nature of the PRC-DPRK relationship: some conservatives insist on the ideological comradeship that was “cemented with blood,” while others are semi-openly talking about treating Pyongyang simply as a client and a pawn.

CONCLUSION Ever since the late 1990s, the PRC has managed to have a stable working relationship with the United States, despite the existence of differences and uncertainties, as the central piece of its foreign policy that is motivated by the pursuit of political preservation, economic prosperity, and national

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power. Beijing has gingerly joined the United States and other major powers in forming a “consensus” to maintain peace and stability through maintenance of the status quo on the Korean Peninsula. This policy has sufficiently enabled the PRC to keep its long time official commitment to Korean reunification while enjoying a stable, manageable, and profitable division of the Korean Peninsula. As one senior policy analyst commented in private, with China’s political shouwan (skills), Beijing has managed to sustain the Korean division while, among the four major external powers, enjoying “the only good relationship” with both Seoul and Pyongyang. The Six-Party Talks, expected to be long and hard, are welcomed by Beijing, promising further sustenance to the status quo through a protracted dialogue toward a final cross-recognition process and a peace treaty to replace the often shaky armistice agreement, thus institutionalizing stability on the peninsula. The talks also allow Beijing to prove to Washington that there are real shared strategic interests between them regarding stability and denuclearization of the Korean Peninsula and beyond.78 The PRC is glad to be viewed as a valued help to the United States and continues to enjoy the best strategic position on the Korean Peninsula among all major powers. In general, Beijing’s engagement policy has been working well for its purposes. In the near future, while enjoying its success in pursing its No Nukes, No Unification dual objectives through engaging both Koreas, Beijing is likely to leave the leadership and initiatives, as well as the burden, to the United States. The agreement of principles reached at the Six-Party Talks in 2005 and the new progresse toward denuclearization in 2007 showed how Beijing can work to help smooth the process. However, that decade-long PRC policy toward Korea could change should the U.S.-PRC relationship sour or even enter a probable crisis over, chiefly, the Taiwan issue; or should Beijing fail in maintaining its domestic political stability. The Korean Peninsula has historically been a major playground and battlefield to the major powers; it now tests the future of China’s foreign policy in close association with the all-important U.S.-China relationship.79 Beijing may trade the DPRK for Taiwan or for its own political survival; it may also think, as one Chinese posted on the Internet, that “the enemy of your enemy is your friend. Nobody likes North Korea, but we should support everyone who opposes the United States.”80 Many inside China are now increasingly pondering if China should be more aggressive on the Korean Peninsula,81 to seek its “traditional” sphere of influence there. It is indeed a highly interesting, yet highly uncertain time to observe China’s growing and evolving influence and role on the Korean Peninsula.82 How long will and can Beijing continue its engagement with both Koreas for its No Nukes, No Unification dual policy objective? To stabilize the Sino-American relationship, avoid a showdown over the Taiwan issue, and maintain a peaceful neighborhood remain the core of PRC’s

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diplomatic interest. The No Nuke policy has served Beijing well through cultivating shared interest with the United States and preventing a chain reaction of nuclearization in East Asia that would greatly limit Chinese power and ambitions. But that policy could backfire. Coercing Pyongyang into denuclearization may defeat the No Unification policy as the DPRK, already impoverished and now being deprived its most potent bargaining chip, would be much more susceptible to a Seoul-dominated unification process. Worse, a desperate and distrustful DPRK could quickly become a new, willing anti-China ally to the United States if Washington could manage to overcome its loathing of Pyongyang on ideological grounds.83 Aware of that, Beijing may choose to deemphasize the nuclear issue so to maintain Pyongyang as a useful ally for as long as possible. “Like it or not, the world will probably have to accept North Korea’s nuclear status,” predicted a PRC senior scholar in 2005.84 On the other hand, it may not be that difficult for China to accept a South Korea–dominated Korean unification.85 After all, the ties between the ROK and the PRC now are at their historical best and a united Korea is probably nuclear weapons-free and unlikely to treat China as its main enemy. In its grand games with Japan and, mainly, the United States, Beijing wants to cultivate and could use any help.86 A friendly and stable Korean Peninsula, expected to be nationalistic toward Japan and America, united or not and preferably denuclearized, appears to Beijing as the desirable future in Northeast Asia, so long as the CCP regime is safe and China keeps rising, peacefully. What a leading Chinese Korea hand wrote commenting on the 2007 Kim-Roh summit meeting nicely illuminates Beijing’s Korea policy: China is the good neighbor of the Korean Peninsula, China has always been for the two parties of the South and North to independently and peacefully unite without external interventions. China has an irreplaceable, constructive role to play in promoting the process of détente and unification on the Korean Peninsula. If the leaders of the ROK and DPRK could simultaneously pursue inter-Korean relations and a friendly relationship with China, organically combining the pursuit of Peninsula unification with geopolitics, it would accelerate the pace of Korean unification and benefit peace, stability, and prosperity in Northeast Asia.87

NOTES This chapter is an extensively revised version of the previously published article, “A Regional Play of the Global Game: China’s Korea Policy and the SinoAmerican Relationship,” International Journal of Korean Unification Studies (Seoul: Korea Institute for National Unification) 14, no. 2 (2005): 141–70.

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1. Critics may suggest that Beijing’s policy of peace and prosperity in its neighborhood may be simply bidding for time and acquiring power by granting favors, much like the imperial policy of constructing a benevolent tributary system. 2. Fei-Ling Wang, “Changing Views: Chinese Perception of the United States-South Korea Alliance,” Problems of Post-Communism (formerly Problems of Communism) 43, no 4 (July–August, 1996): 25–34; Tacit Acceptance and Watchful Eyes: Beijing’s Views about the U.S.-ROK Alliance, Strategic Studies Institute, Carlisle Barracks, PA: The U.S. Army War College (January 1997); “China and Korean Unification: A Policy of Status Quo,” Korea and World Affairs 22, no. 2 (Summer 1998): 177–98; “Joining the Major Powers for the Status Quo: China’s Views and Policy on Korean Reunification,” Pacific Affairs 72, no. 2 (Summer 1999): 167–85. 3. Charles Hutzler, “China May Be on Course To Overtake U.S. Economy,” The Wall Street Journal, January 24, 2005; PRC State Statistical Bureau, PRC Statistical Report of 2006 (Beijing: SSB, 2007); CIA: The World Factbook 2006 (Washington DC: CIA, 2007). 4. Kang Xiaoguang, “Weilai 3–5 nian zhongguo dalu zhengzhi wendingxing fengxi” (Analysis of the Political Stability Issue in Chinese Mainland in the Next 3–5 Years), Zhanlue yu guanli (Strategy and Management) 3 (2003): 1–2. 5. In the early 2000s, the PRC started to actively participate in the AsiaEurope Meeting (ASEM), a dialogue between the EU and East and Southeast Asia nations created in 1996. In 2004, China participated in the thirty-nine-nation dialogue. Huang Haiming et al “ASEM Enhances Overall Asia-Europe Relations,” Xinhua, October 6, 2004; and Xiao Chenglin “Asia, Europe Move Closer in Cooperation,” Xinhua, October 5, 2004. 6. Author’s interviews in Beijing, 2004. The Russians, however, seem to deeply doubt this. “Alliance between Russia, China, and India Hardly Possible According to Expert Opinion,” Russian News and Information Agency, January 20, 2005. 7. Indo-Asian News Service, “Shift in China’s Foreign Policy under Hu,” October 21, 2004. For China’s objection to Japan’s bid, see, for example, Renmin Ribao (People’s Daily), “Four Barriers on Japan’s Way to ‘Permanent Seat,’ ” September 26, 2004, in FBIS-NES-2004-0927. 8. Zhang Feng, “Zhongguo fuxin kaiqi xin lishi” (China’s Rejuvenation Creates New History), Global Times, August 30, 2004. 9. Zhang Wenmu, “Quanqiuhua jincheng zhong de zhongguo guojia liye” (China’s national interest in the process of globalization), Zhanlue yu guanli (Strategy and Management) 1 (2001): 63. 10. Fei-Ling Wang, “Heading Off Fears of a Resurgent China,” International Herald Tribune, April 11, 2006. 11. Susan Shirk, China Fragile Superpower: How China’s Internal Politics Could Derail Its Peaceful Rise (New York: Oxford University Press, 2007). 12. Zheng Bijian (former executive vice president of the CCP’s Central Party School) first officially proposed the concept in his speech in November of 2003. Hu Jintao and Wen Jiabao advocated in 2004 the new concept of “peaceful rise” as it was customary in the PRC for a new leadership to come up with a new slogan. See http://news.xinhuanet.com/zhengfu/2004-03/26/content_1386611.htm. However, presumably under pressure and after second thoughts, the phrase disappeared from

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PRC official speeches, statements, and reports by fall of 2004. The phrase was reused by Zheng (who finally retired in summer of 2007) and many others again in 2006 and 2007. 13. “Asia’s Great Oil Hunt,” BusinessWeek, November 15, 2004. 14. Qiu Yuanping “Minaxiang shijie de xunyan” (Declaration to the World), Qiushi 3 (2003): 27–28. 15. Financial Times, September 22, 2004. 16. Fei-Ling Wang, “Preservation, Prosperity, and Power: The Motives behind China’s Foreign Policy,” Journal of Contemporary China 14 (November 2005): 669–94. 17. Jiang Zemin, Political Report to the 16th CCP National Congress, Beijing, November 2002. Under Hu Jintao, Beijing kept this estimate but rephrased it as a “coexistence of opportunity and challenges.” The Communiqué of 4th Plenum of the 16th CCP Central Commission (Beijing), September, 19, 2004. 18. For more discussion of the Chinese foreign policymaking in the 2000s, especially Beijing’s peculiar incentive structure, see Yong Deng and Fei-Ling Wang, eds., China Rising: Power and Motivation in Chinese Foreign Policy (Lanham, MD: Rowman and Littlefield, 2005). 19. David Shambaugh, Modernizing China’s Military: Progress, Problems, and Prospects (Berkeley: University of California Press, 2003), 10, 330–32. 20. Tang Shiping, “Zailun zhongguo d da zhanlue” (Another Threat on China’s Grand Strategy), Zhanlue yu guanli (Strategy and Management) 4 (2001): 29– 37; Zhang Wenmu, “Quanqiuhua jincheng zhong de zhongguo guojia liye” (China’s National Interest in the Process of Globalization), Zhanlue yu guanli (Strategy and Management) 1 (2002): 52–64; Lou Yaoliang, Diyuan zhengzhi yu zhongguo guofang zhanlue (Geopolitics and China’s National Defense Strategy) (Tianjin: Tianjin Remin Press, 2002), 255; Yan Xuetong, “Zhongguo zonghe guoli shangbu pingheng” (China’s Comprehensive Power Is Not Balanced), Global Times, August 24, 2004. 21. Hu Angang and Meng Honghua, “Zhongmeirieying youxing zhanlue ziyuan bijiao” (A Comparison of Tangible Strategic Resources among China, the US, Japan, Russia, and India), Zhanlue yu guanli (Strategy and Management) 2 (2002): 26–41. 22. Rice’s statement at her U.S. Senate confirmation hearing, January 18, 2005. 23. Richard Armitage’s TV interview, December 10, 2004. Released by the U.S. Department of State on December 30, 2004. 24. Jane Perlez, “China Shoring Up Image as Asian Superpower,” International Herald Tribune, December 2, 2004; “Fear of the Dragon,” The Economist, November 17, 2004, 34 and 37. 25. Chisa Fujioka, “China, India Focus of U.S., Japan, Australia Talks,” Reuters, September 8, 2007. It is interesting to notice that the ROK, a long-time U.S. ally in the region, is not part of this so-called “Asian NATO.” 26. See Yong Deng and Fei-Ling Wang, eds., In the Eyes of the Dragon: China Views the World (Lanham, MD: Rowman and Littlefield, 1999); Li Shengming and Wang Yizhou, eds., 2003 Nian quanqiu zhengzhi yu anquan baogao (2003 Yellow Book of International Politics and Security) (Beijiing: Shehui Kexue Wenxian Press, 2003), especially 1–15 and 84–105.

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27. Ding Gang, “Tuo meiguohua: buke huibi de wenti” (De-Americanization: An Unavoidable Question), Global Times, September 13, 2004; Wang Jisi “Gailun zhongmeiri sanbian guanxi” (On the Triangular Relationship among China, the U.S. and Japan), in Lin Rong, Xinshiji de sikao (Thinking in the New Century), Vol. 1 (Beijing: Central Party School Press, 2002), 3; Tang Shiping, “2010–2015 nian d zhongguo zhoubian angquan huangjin” (China’s Neighboring Security Environment in 2010–2015), Zhanlue yu guanli (Strategy and Management) 5 (2002): 40. 28. See Zhu Tingchang et al., eds., Zhongguo zhoubian anquan hunagjin yu anquan zhanlue (China’s security environment and strategy in the neighboring areas) (Beijing: Shishi Press, 2002), 5. 29. See Samuel Kim, ed., The International Relations of Northeast Asia (Lanham, MD: Rowman and Littlefield, 2004). 30. He Dalong, “9.11 hou guoji xingshi d zhongda bianhua” (Major Changes in International Situations after 9/11), Shishi ziliao shouce (Handbook on Current Affairs) 4 (2002): 12 and 15. 31. Qian Qichen, “U.S. Strategy Seriously Flawed,” China Daily, November 1, 2004. 32. NPR reporting from Sydney, Australia, September 8, 2007. 33. Thomas J. Christensen, “A Strong and Moderate Taiwan,” Speech to U.S.-Taiwan Business Council Defense Industry Conference, Annapolis, MD, September 11, 2007. 34. Wang Yiwei, “China’s Role in Dealing with the North Korean Nuclear Issue,” Korea Observer 36, No. 3 (Autumn 2005), 465–88. 35. Fei-Ling Wang, “Joining the Major Powers for the Status Quo: China’s Views and Policy on Korean Reunification,” Pacific Affairs 72, no. 2 (Summer 1999): 167–85. 36. Guo Xuetang, “Chaoxian bandao tongyi: wenti yu qianjing” (The Reunification of the Korean Peninsula: Issues and Prospects), Guoji guancha (International Observation) 5 (1996): 26–29. 37. Zhongguo Waijiao Gailang (Survey of Chinese Diplomacy), several volumes (Beijing: Shijie Zhishi Press, 1997 to 2000); Xinhua News, August 24, 2007. 38. Xinhua News Dispatch, December 28, 2004. 39. Mary Han, “Northeast Asia: A New Center of Culture,” unpublished paper, Georgia Tech, Atlanta, December, 2004. 40. CIA, World Factbook 2006. 41. Author’s interview with a PRC analyst, July 2007. 42. Released by ROK Ministry of Unification. October 5, 2007. Italics added. 43. “Multilateral Summit ‘Would Mark Start of Peace Process,’ ” Chosun English News, October 8, 2007. 44. Norimitsu Onishi, “Korean Summit Results Exceed Low Expectations,” New York Times and International Herald Tribune, October 4, 2007; “The Koreas: It’ll Cost you,” The Economist, October 6, 2007, 50. 45. “Zhongguo: wufa jieshou meiyou zhongguo canjia de sanfang shounao huitan” (China: Cannot Accept a Trilateral Summit Meeting without China), this and several other similar postings were widely published in many PRC-based or pro-PRC overseas Chinese Web sites such as http://www.3mt.com.cn, http://www, tianya.cn, http://www.cqzg.cn, and http://www.tycool.com, October 7–12, 2007.

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46. The statement by PRC Foreign Ministry Spokesman, Liu Jianchao. Reported by Xinhua News Agency, October 4, 2007. 47. Nina Hachigian, “China’s Stake in a Non-nuclear Korea,” Christian Science Monitor, February 17, 2005. 48. Wang Yiwei, “China’s Role in Dealing with the North Korean Nuclear Issue,” 469. 49. Xinhua Daily Telegraphy, December 9, 1997. 50. You Ji, “Understanding China’s North Korea Policy,” China Brief 4, issue 5 (March 2004). 51. “Xinhua Yearend, Mistrust Between DPRK and the U.S. Snags Six-Party Talks,” December 18, 2004, in FBIS-CHI-2004-1218. 52. For a report on China’s deep displeasure and harsh reactions to the DPRK nuclear testing, see Gregory J. Moore, “How North Korea Threatens China’s Interests: Understanding Chinese ‘Duplicity’ on the North Korean Nuclear Issue,” International Relations of the Asia-Pacific 8, no. 1 (January 2008), 1–29. 53. Author’s interview with PRC analysts, July 2007. 54. She He, “Coaxing and Coercing in International Politics,” Guangming Ribao (Guangming Daily), January 12, 2005. 55. Wang Yiwei, “China’s Role in Dealing with the North Korean Nuclear Issue,” 477. 56. Wang Mian, “A Reshaping US-ROK Alliance,” Xinhua News Agency, December 19, 2004. 57. “Who’s Japan’s New Defense Program Outline Intended to Defend Against?” Xinhua Commentary, December 11, 2004. 58. Xinhua News Dispatch, November 10, 2004. 59. One Chinese scholar somewhat wishfully asserted, for example, that Korean unification is good to Beijing because it is likely to form a new alliance with China opposing the U.S. and Japan. Zhang Quanyi, “What Korean Unification Means to China,” Policy Forum Online, The Nautilus Institute, October 12, 2007. 60. Victor D. Cha, “Korea’s Place in the Axis,” Foreign Affairs 81, no. 3 (May/June 2002). 61. John Park, “China Takes ‘Xiaokang’ Approach to North Korea,” The Strait Times, May 5, 2004. 62. For a report on the possible PRC military “taking over” of North Korea, see Hamish McDonald, “Beijing Considers Its Korean Options,” The Age, September 7, 2003. 63. Wang Yiwei, “China’s Role in Dealing with the North Korean Nuclear Issue,” 483. Some senior CCP officials commented in private that the North Koreans are “really a shame for socialism” because they have failed to pursue Chinese or Vietnamese-style reforms and criticized the Chinese as “revisionists,” who had become a group of “socialist paupers.” 64. PRC Ministry of Foreign Affairs, News Release on DPRK, October 23, 2004. 65. Clearly, however, the article in question might have been used as an excuse to shut down an outlet that had published numerous pieces showing dissenting views on a host of sensitive political and policy issues.

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66. Xin kuai bao (New Express News), January 20, 2005. 67. Donald Kirk, “Chinese History: A Cause that Unites the Two Koreas,” South China Morning Post, February 28, 2004. 68. For recent Chinese takes on the territorial disputes with the Koreans, see Guoji xianqu daobao (International Herald News), December 7, 2006 and Xin kuai bao (New Express News), August 9, 2007. 69. Li Fengxian, “Zui you keneng yu zhongguo jiaozhan de you ne shige guojia” (Which Ten Countries Are Most Likely to Have War with China?), http://opinion.nfdaily.cn/content/2009-01/16/content_4848120.htm. 70. Seo Hyun-jin, “Controversy Lingers despite Korea-China Agreement,” Korea Herald, August 24, 2004; Ryu Jin “China’s No. 4 Man to Visit Seoul Thursday,” Korean Times, August 25, 2005. 71. “PRC Closes Two Internet Sites Reporting PRC-ROC Agreement on Koguryo History,” China Times (Taipei), August 30, 2004. 72. Scott Snyder, “A Turning Point for China-Korea Relations?” Comparative Connections (October 2004), 109–16. 73. “A Second Look at China,” Editorial of Korea Herald, Seoul, January 18, 2005. 74. For example, www.xinjunshi.com/Article/wangyou/200501/5315.html. 75. Michael Yoo, “China Seen from Korea: Four Thousand Years of Close Relationship,” Research Institute of Economy, Trade and Industry, Tokyo, Specialized Article, February 10, 2003. 76. Keith Bradsher and James Brooke, “Chinese News Media Critical of North Korea,” New York Times, February 13, 2005. 77. For diversity and fragility of the PRC internal sociopolitical and economic situation, see, for example, Shirk, China Fragile Superpower, and Bates Gill, Rising Star: China’s New Security Diplomacy (Washington DC: Brookings Institution Press, 2007). 78. Doug Bandow, “Enlisting China: The Battle for Nuclear Free Koreas,” National Review, April 29, 2003. 79. Phillip C. Saunders and Jing-dong Yuan, “Korea Crisis Will Test Chinese Diplomacy,” The Asian Times, January 8, 2003; Liu Aicheng, “U.S. Foreign Policy Tend to Be More Hardline,” Renmin Ribao (People’s Daily), November 11, 2004. 80. Keith Bradsher and James Brooke, “Chinese News Media Critical of North Korea,” New York Times, February 13, 2005. 81. Zhu Feng, “China’s Policy on the North Korean Nuclear Issue,” China Strategy 3 (July 2004); “DPRK’s Nuclear Test and Troubling China-North Korea Ties,” conference paper, Beijing, 2006; Tao-Wezhao, “Six-Party Talk Moves Forward,” China Daily, July 22, 2007. 82. David C. Kang, China Rising: Peace, Power, and Order in East Asia (New York, Columbia University Press, 2007). 83. A PRC analyst said in private that Beijing “already knew” that Pyongyang had proposed such to Washington. July 2007. 84. Shen Dingli, “Accepting a Nuclear North Korea,” Far Eastern Economic Review, March 2005, 54. 85. Wang Yiwei, “China’s Role in Dealing with the North Korean Nuclear Issue,” 481.

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86. Michael Hirsh and Melinda Liu, “North Korea Hold ‘Em,’ ” Newsweek, October 5, 2005. 87. Li Dunqiu, “Chohan tongyi, zhangai hezai?” (Where Is the Obstacle to Korean Unification), Huanqiu Shibao (Global Times), October 10, 2007. Italics added.

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FOUR

JAPAN’S NORTH KOREA POLICY The Dilemma of Coercion Jung Ho Bae and Sung Chull Kim

For Japan, North Korea (Democratic People’s Republic of Korea: DPRK) has not been a distant country, although it remains the only country with which Japan has no normalized relations. After the end of the Korean War, Japan began to seek influence over the two political entities on the Korean Peninsula. Despite officially denying the statehood of the DPRK, Japan gradually expanded cultural and trade relations with the country. As early as 1955, the then prime minister Hatoyama Ichiro, a nationalist but adventurous politician who initiated diplomacy with the Soviet Union despite American worries and restrictions,1 allowed a private-level agreement with North Korea for the promotion of trade and cultural exchange. Japan’s normalization of relations with South Korea (Republic of Korea: ROK) in 1965 temporarily constrained Tokyo’s political room to act regarding the North. But Tokyo’s North Korea policy continued to pursue expansion of economic exchange, so that the policy came to be thought of as separating economic matters from political matters. Détente in the early 1970s rendered the Japanese government proactive in its approach to North Korea. After relations suffered a downturn in the mid-1970s owing to North Korean delays in paying debts, a Korean-Japanese person’s attempt to assassinate ROK president Park Chung Hee, and the fall of South Vietnam, Japan-DPRK relations improved so significantly that, in May 1977, Tokyo accepted for the first time a visit by members of the North Korean Supreme People’s Assembly.

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As the cold war thawed, Japan became even more serious in its approach to North Korea. Encouraged and alarmed by South Korea’s Nordpolitik, which was inspired by then president Roh Tae Woo’s July 7 declaration in 1988, Japan and North Korea hastened to normalize their previously limited bilateral relations. Japan was willing to resolve the last remaining post–World War II issues, and North Korea was abandoning its diplomatic isolation; consequently, the two states’ interests merged with each other to produce eight rounds of normalization talks in 1991 and 1992. It is true, however, that the talks yielded nothing of official consequence owing to the North Korean nuclear crisis and emergence of the alleged-abduction issue. It took a decade, until Japan and North Korea held the historic 2002 summit in Pyongyang, to achieve a breakthrough in the stalemate of the normalization talks. But since the summit, the abduction issue has taken center stage in Japan’s North Korea policy, a situation that neither of the two governments originally expected. The political instability, exemplified by frequent prime-minister change to Abe in 2006, to Fukuda in 2007, and to Aso in 2008, made a shift of the North Korea policy extremely difficult. This chapter points out that the Japanese position that regards resolution of abduction issue as the precondition for normalization indeed interferes with resolution of the abduction issue per se and impedes solutions to broader issues pertaining to regional security and peace. We argue in this chapter that resolution of pending bilateral issues, including the abduction issue, is linked to and depends on the denuclearization process of the North. With the February 13 Agreement in 2007, the Six-Party Talks, a multilateral mechanism for engagement with nuclear North Korea, have opened room for direct Japan-DPRK contact as one of five working groups, an outcome that otherwise would have seemed impossible for the two grudging countries. The Japanese government has to extensively alter its North Korea policy; in particular, it should try to resolve the contradiction between existing coercive strategy at the bilateral level and continued participation in the Six-Party Talks.

THE ATTEMPT AT NORMALIZATION At the initial stage of the post–cold war era, Japan’s interest in normalizing relations with the DPRK concurred with North Korea’s desperate need to escape diplomatic isolation. Japan-DPRK relations, however, suffered difficulties in the 1990s owing to pending issues, including North Korean nuclear development and the alleged-abduction issue, as well as disagreements on the compensation for history issue; therefore, relations in this period have been characterized either as contacts plagued by troubles or as troubles peppered with contacts.2 Japan’s North Korea policy before the Koizumi Junichiro-Kim Jong Il summit in 2002 underwent three phases.

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First Phase: A Forward-looking Attempt at Normalization, 1990–92 South Korea’s Nordpolitik, a bold diplomatic effort to establish normalized relations with the Soviet Union and China, had a significant effect on North Korea. In order to offset South Korea’s attempts, North Korea intensified its diplomacy with South Korea. North and South Korea started high-level talks in September 1990, after eight rounds of preliminary meetings between February 1989 and July 1990. Soon after foreign minister of the Soviet Union Eduard Shevardnadze notified North Korea in September 1990 of Gorbachev’s plan to normalize relations with South Korea beginning in January 1991, North Korean leader Kim Il Sung made an informal visit to China to meet Chinese leaders, including Jiang Zemin and Deng Xiaoping.3 Against this backdrop, as well as observed global level changes in 1989 and 1990, Japan swiftly and proactively moved to pursue Japan-DPRK normalization, whose absence constituted one of Japan’s last unresolved post–World War II diplomatic issues. Kanemaru Shin, a kingmaker in Japanese politics, led a group of Japanese Diet members, composed of members of the Liberal Democratic Party (LDP) and the Japan Socialist Party (JSP), to Pyongyang on September 24–28, 1990.4 Insofar as normalization between the Soviet Union and South Korea seemed imminent, the Kanemaru group’s visit was an important diplomatic mission rather than a courtesy visit by legislators, as evidenced by the fact that foreign ministry officials accompanied the group, although the visit was not a government-level one. North Korean leader Kim Il Sung tried to use this opportunity to begin normalized relations with Japan. Kim had a private meeting with Kanemaru at the Mt. Myohyang resort and proposed starting normalization talks immediately.5 This proposal sharply differed from the previous position that normalization would imply Japan’s recognition of two Koreas on the peninsula.6 At the conclusion of the visit, the Workers’ Party of Korea (WPK), the LDP, and the JSP laid out the “Joint Declaration of Three Parties” on September 28. The declaration stipulated that “diplomatic relations be established as soon as possible.” After returning to Japan, Kanemaru, who was suffering political difficulties due to corruption scandals, repeated that the declaration would not bind the Japanese government’s North Korea policy. Nevertheless, the declaration became the foundation of the government’s ensuing normalization talks with the DPRK. After three preliminary meetings in November 1990, Japan and North Korea held the first normalization talks in Pyongyang on January 30–31, 1991, and continued the talks until the eighth round in Beijing on November 5–6, 1992, which ended with a standoff. The two countries narrowed the gap on how to resolve the history-clearance issue; for instance, North Korea eventually requested not war reparations but compensation for

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Japanese colonial rule.7 However, normalization talks were troubled by newly emerging issues. Japan raised international inspection of North Korea’s clandestine nuclear facilities as a precondition to normalization talks. Also, Japan requested that North Korea clarify its role, if any, in the alleged abduction of the Japanese woman Takuchi Yaeko, whose Korean name is Lee Un Hye, and to investigate other missing Japanese citizens. North Korea, in response, placed the comfort-woman issue front in direct opposition to the alleged-abduction issue.8 Second Phase: Troubled Contacts, 1993–98 Despite the standoff in the normalization talks, Japan maintained informal working level contacts with North Korea in Beijing to create an atmosphere conducive to a resumption of normalization talks. Particularly at working level meetings, the division directors in each foreign ministry became partners: the director of the Northeast Asia Division from Japan became the counterpart of the director of the Japan Division from North Korea. The second phase in bilateral relations extended from the end of 1992, when a standoff surfaced in normalization talks, to August 1998, when North Korea tested a Taepodong-1 missile. This second phase was considered a period of ups and downs and of contacts plagued by troubles. As the North Korean nuclear crisis abated under the 1994 Agreed Framework, Japan decided in December 1995 to participate in the Korean Peninsula Energy Development Organization (KEDO), an organization promoting energy aid for North Korea. Parallel to this development, Tokyo and Pyongyang had more frequent contacts with each other to create new momentum for normalization talks. At a Japan-DPRK working level meeting held in Beijing in August 1996, the two sides discussed Japan’s rice aid and the size of Japan’s “colonial past” compensation to North Korea. Japan’s hint that the compensation would amount to five trillion U.S. dollars helped the atmosphere recover, but only barely.9 Japan’s expectation that normalization talks would resume was dashed in February 1997, when Hwang Chang Yop—North Korea’s prominent ideologue and the master of the Chuch’e idea (the idea of self-reliance)—defected to South Korea on his way home from a visit to Japan. Pyongyang dealt with Hwang’s case in a surprisingly low-key way, for the purpose of domestic social control,10 whereas Tokyo grew cautious about inviting North Korean officials to Japan. More important, the publicizing of an alleged abduction shocked Japanese society and undercut bilateral relations. In an interview with Sankei Shimbun on March 12, 1997, Ahn Myong Jin, who had been a North Korean agent but who was a South Korean resident at the time of the interview, stated that he had seen a Japanese woman, Yokota Megumi, at the Kim

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Il Sung National War College in the Pyongyang area in October 1988.11 (Yokota had disappeared in 1977 at the age of thirteen on her way home from a badminton class at school.) Ahn’s statement stirred the Japanese public’s sentiment about the previously possible and now seemingly probable role that North Korea played in the kidnapping of such a young girl. The statement affected the political arena also: Diet members made inquiries into the case and demanded that the Japanese government extend its related investigations to unsolved missing person cases that might involve North Korea. In 1997, three organizations emerged to raise public awareness about the issue and to lay out a related plan for political pressure on North Korea. Families of the missing persons organized the Association of Families of Victims Kidnapped by North Korea (AFV) on March 26. Diet members who supported the association’s cause formed the Diet Members Union for the Rapid Rescue of Japanese Kidnapped by North Korea (DUR) on April 18. And right-wing journalists organized the National Association for the Rescue of Japanese Kidnapped by North Korea (NAR) on October 4.12 Given this situation, the Japanese government grew more reluctant than ever before to engage in bilateral relations with North Korea. Using their working level channels, Japan and North Korea worked to break through the impasse. At a meeting held in Beijing on August 21–22, 1997, the two countries restarted discussion about all pending issues. Postponing the alleged-abduction issue for “further discussion,” the meeting reached a certain degree of settlement on Japanese food aid to North Korea, on North Korea’s alleged drug smuggling, and on Japanese wives’ visit to their home towns in Japan. (It is said that there were approximately 1,831 Japanese women who married Korean men in Japan during and after World War II and later followed their husbands to North Korea after kikokujigyo (the repatriation project) started in 1959.)13 Also, the two countries agreed on early resumption of the normalization talks. At a Red Cross meeting on September 9, 1997, Japan and North Korea agreed to permit the Japanese wives to visit their home towns. The first group of fifteen wives arrived in Japan on November 8, 1997. Japanese media treated their arrival as headline news and praised this visit as the starting point in efforts to ensure that all North Korea–bound Japanese wives could visit Japan. But Japanese media also sarcastically noted that the fifteen women, being model members of North Korean society, had undergone a screening process that would ensure their loyalty to the DPRK regime. And Japanese media warned that any North Korean attempt either to use this first group’s visit as diplomatic leverage or to prevent follow-up visits would harm Japan-DPRK relations. In contrast to this media coverage, the two governments praised the first group’s visit and expressed the opinion that it would possibly pave a way toward normalization talks. This cautious but optimistic appraisal at the governmental level was followed by

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the arrangement of a hometown visit of a second group of twelve Japanese wives between January 27 and February 2, 1998.14 The ameliorating mood in Japan-DPRK relations owing to the hometown visits of Japanese wives cooled down when the alleged-abduction issue arose yet again. The Japanese government declared on April 16 that there would be no more governmental-level talks unless Japan received a clear explanation of the abduction issue.15 In response, in June, the North Korean Red Cross made an official statement refuting the allegations that North Korea had abducted Japanese citizens. Given this context, the negotiations over the pending visit by a third group of Japanese wives collapsed. North Korea’s firing of a Taepodong-1 on August 31 over Japanese territory decisively paralyzed bilateral relations. This firing helped empower hard-line viewpoints in Japan; the testing of this three-stage missile convinced Japanese that the perceived security threat occasioned by the 1993–94 North Korean nuclear crisis now was a reality. Given this atmosphere, the Japanese government felt it had no choice but to stop the food aid and the direct charter flights to North Korea; moreover, the government suspended its contribution to KEDO. In response, North Korea closed both official and unofficial channels to Japan. The frozen bilateral relations further deteriorated when a North Korean fushinsen (suspicious boat) infiltrated Japanese territorial waters in March 1999. Japanese viewed this series of events not as simple provocative North Korean behavior but as a serious threat to Japan’s security—a threat that would require new legal provisions.16 Third Phase: Resumed Normalization Talks with No Result, 1999–2001 Given the progress made at the September 1999 U.S.-DPRK talks in Berlin regarding the North Korean missile issue, which resulted in a North Korean moratorium on missile tests and an easing of U.S. sanctions on North Korea,17 and given the continuation of South Korea’s engagement policy toward North Korea, Japan and the DPRK again attempted to thaw their frozen relations. The two governments held a division directors’ meeting in Singapore on October 18–20,18 and accordingly, the Japanese government stated that it would resume the charter flights between the two countries. Also, a group of Diet members led by former prime minister Murayama Tomiichi visited Pyongyang on December 1–3 and reached a three-point agreement with their North Korean counterparts: (1) the two governments would resume the normalization talks in the near future, and for this resumption, they would hold a preliminary meeting by the end of the year; (2) the two governments would continue to discuss humanitarian issues (apparently meaning the abduction issue for Japan and humanitarian aid for North Korea); and (3) the two governments would strengthen the effort to expand bilateral exchanges and visits. With this agreement, bilat-

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eral relations seemed to enter a new phase.19 But the NAR, the pressure group concerned with the alleged-abduction issue, denounced the agreement and, on December 13, demanded that the Japanese government include the abduction issue on the official agenda of the normalization talks, offer North Korea no food aid in the absence of progress on the abduction issue, and prepare for the collapse of the North Korean regime.20 At a Red Cross meeting held in March 2000, the two countries still revealed sharp differences regarding the alleged-abduction issue; however, as North Korea expressed its willingness to cooperate with Japan in reinvestigating the “still missing” Japanese citizens, Japan agreed to hold the ninth normalization talks in Pyongyang on April 4–8. The normalization talks, the first held in seven years, ended with no concrete agreement, but Ambassador Chong Tae Hwa of the DPRK pledged North Korea’s assistance in the reinvestigation issue, and Ambassador Takano Kojiro of Japan stressed the significance and, indeed, the necessity of the development of the Japan-DPRK relationship and agreed to hold the tenth normalization talks in Tokyo in May.21 The date of the tenth normalization talks was delayed because of the North Korean side’s preparation for the first inter-Korean summit in June and because of the Japanese side’s preparation for a general election scheduled for June 25. In the midst of this preparation period, the upbeat expectation in Japan for a development of bilateral relations manifested itself with the establishment, on July 3, of the Citizens Council for the Promotion of Japan-DPRK Normalization. The tenth normalization talks, held in Tokyo on August 24–25, ended without any tangible agreement point, but there were two developments. First, Japan suggested that its compensation to North Korea for Japanese colonization of Korea be of the “economic cooperation” type, akin to the compensation specified in the 1965 Japan-ROK normalization agreement; second, North Korea alleviated Japanese concern over the missile issue by suggesting a possible moratorium on tests depending on the results of the ongoing U.S.-DPRK agreement.22 The two governments again pursued contacts both on and below the surface in the following months. The most notable results of these contacts were the visit of the third group of Japanese-born wives to Japan on September 12–18 and Japan’s decision to send a half-million tons of food aid to North Korea on October 5.23 Each side intended that its measure function as a positive response to the other side’s concern: Tokyo’s humanitarian concern and Pyongyang’s economic concern. In particular, Japan’s measure reflected a rapid change in the international relations centered on the Korean Peninsula. U.S.-DPRK relations shifted rapidly in 2000 after Washington’s adoption of the 1999 Perry Initiative. In this initiative, the United States aimed to resolve the problem of North Korean weapons of mass destruction while prioritizing negotiations over coercion. Equally

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important, inter-Korean relations after the June 2000 summit between Kim Dae Jung and Kim Jong Il improved, especially in economic affairs. With the approval of North Korean leader Kim, Hyundai Asan, a South Korean company affiliated with the Hyundai group, launched construction of an industrial complex in Kaesong, just above the inter-Korean border. In this changing atmosphere, the eleventh normalization talks were held in Beijing on October 30–31, 2000. But the talks achieved no concrete result and closed without even fixing the date of the next talks. Since then, the two governments have continued informal contacts only. Relations between Japan and North Korea deteriorated again owing to two factors: first, the Japanese police investigation in November 2001 regarding alleged illicit activities by Tokyo Chogin (Korean Tokyo Credit Union), which had been affiliated with North Korea and which had gone bankrupt in May 1999; and second, an extended investigation of the headquarters of Chongryon (General Association of Korean Residents in Japan).24 North Korea considered the actions “organized oppression” of Koreans in Japan; accordingly, the North Korean Red Cross declared an end to the reinvestigation into still-missing Japanese citizens—an issue whose resolution the Japanese government had awaited eagerly. The bilateral relations further worsened when the North Korean fushinsen intruded into Japanese territorial waters in December. Even though the official North Korean news source, the Korea Central News Agency, denied the incident, the belongings of two searched crew members strongly suggested that the boat was North Korean.25 In sum, Japan’s strategic considerations on the Korean Peninsula and its desire to solve the long-standing diplomatic issue stemming from Japanese colonial rule led Tokyo to engage with Pyongyang through the normalization talks. Before the September 2002 summit, Japan and North Korea held eleven normalization talks and worked together through a number of working level meetings. But the issue of North Korea’s alleged abduction of Japanese citizens—as well as the security-related issues, including nuclear development and missile testing—bedeviled the Japanese government’s North Korea policy.

KOIZUMI-KIM SUMMITS AND POLITICS OF THE ABDUCTION ISSUE Japan’s North Korea policy during the tenure of Prime Minister Koizumi Junichiro (2001–06) was preoccupied with the domestically sensitive abduction issue. As Japanese political scientist Fujiwara Kiichi aptly notes, the abduction issue became the first case in which public opinion has significantly altered the course of foreign policy.26 Since the 2002 summit, the abduction issue has prevailed over, and preconditioned, all other issues related to North Korea. Because of the issue, Koizumi could not realize normalization

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that he desired within his tenure of prime minister, which ended in 2006 with the termination of his presidency of the LDP. The First Summit and Its Aftermath The frozen bilateral relations slowly recovered some warmth in 2002; both a Red Cross meeting in April and foreign minister talks in Brunei in July contributed to this recovery. This new turn paralleled a secret contact between the two countries for the preparation of a summit. The North Korean side first approached Tanaka Hitoshi, director general of the Asian and Oceanian Affairs Bureau in the Japanese foreign ministry, at the end of 2001.27 Informed of the contact by Tanaka, the resolute prime minister Koizumi Junichiro took an action to gear up the bilateral talks from ambassador-level normalization discussions to a summit in order to resolve the abduction issue, to address security-related issues, and to pave a way to normalization.28 Koizumi audaciously but cautiously planned the first summit; finally he flew to Pyongyang for a one-day summit on September 17, 2002. The summit opened in a tense atmosphere; however, after Kim Jong Il’s surprising admission of North Korea’s abduction of Japanese citizens and his apology for it, the summit brought about a comprehensive agreement that included Japan’s apology and compensation for its colonial rule, the abduction issue, and North Korean nuclear and missile programs. The agreement was announced as the “Pyongyang Declaration” (see Table 4.1 for main agreements). Table 4.1 Main Agreement Points at the 2002 Summit Issues

Agreements

Abduction

• Kim Jong Il’s admission and apology • Eleven abductees: five alive and six dead (figures later corrected to be thirteen abductees: five alive and eight dead) • Continuation of investigation; visit of five survivors to Japan

History issue and compensation

• “Deep remorse and heartfelt apology”: follow-up of the 1995 Murayama declaration • Compensation method similar to the one used in the 1965 Japan-ROK normalization of relations • Economic cooperation through three modalities: grant, lowinterest long-term loans, and assistance through international financial institutions

Nuclear and missile

• Extension of the moratorium on missile tests • Commitment to the 1994 Agreed Framework with regard to resolution of the nuclear issue

Normalization talks

• Immediate resumption of normalization talks

Source: Japan Times, September 18, 2002.

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The Japanese public seemed to support Koizumi’s first summit with North Korean leader Kim Jong Il. According to an opinion poll, his popularity rose dramatically from 43 percent in August to 67 percent right after the summit.29 But the news that only five abductees were alive and that there was a dearth of information about the deceased abductees raised harsh public sentiment against North Korea. Also, the criticism extended to Japan’s ministry of foreign affairs, particularly to Tanaka Hitoshi, who had prepared the summit, for his having concealed the dates of eight abductees’ deaths from these abductees’ families, who learned of the information only after Japanese media reported it. Now, Deputy Chief Cabinet Secretary Abe Shinzo, a hawkish politician with regard to Japan’s North Korea policy, was placed in charge of the abduction issue. North Korea finally sent the five surviving abductees to Japan on October 15 in order to dampen Japan’s fervent criticism of Pyongyang and to create a warmer atmosphere for the twelfth normalization talks. A week after the five abductees’ arrival, however, the Japanese government decided that they would remain in Japan, an act that apparently breached Japan’s agreement with the North to send them back in two weeks. And then, the Japanese government asked the North Korean side to grant the abductees’ children, still in North Korea, the freedom to choose where they would live. It was, therefore, no surprise that the twelfth normalization talks held in Kuala Lumpur on October 29–30 advanced neither the abduction issue nor the history issue, nor yet again the nuclear development issue.30 Koizumi’s Pyongyang visit, whatever his intention may have been, marked a turning point in Japanese policy toward North Korea. The admission by Kim Jong Il that North Korea had abducted Japanese citizens in the 1970s and the 1980s infuriated the Japanese public, a development that was an unintended outcome for Pyongyang. Only a month after the summit, Koizumi expressed his changed position that the Japanese government would not discuss aid to North Korea unless progress was made on both the abduction issue and the nuclear issue.31 This radical policy shift was based on Japanese society’s nearly exclusive focus on the abduction issue, to the exclusion of almost all other issues related to North Korea. Indeed, public opinion about the abduction issue came to play an unprecedented role in the policy toward North Korea. The annual poll conducted by the cabinet office at the end of 2002 found that 83.4 percent of respondents considered the abduction issue the most important concern in Japan’s relations with North Korea.32 Accordingly, how to cope with the issue became the Japanese government’s top priority. Not only right-wing media but also moderate media in Japan stoked the fires of anti–North Korea sentiment. As the Japanese government announced the five returned abductees’ permanent stay in Japan, TV stations aired as many as three to five programs per day about their lives in

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their hometown in Japan and stories about North Korea. As a former NHK news analyst noted, the TV programs suffered from many general problems: lack of evidence in reports, use of the content for possible political propaganda, emphasis on emotional aspects of the issue, and so on.33 After December 2002, many TV channels aired related programs that instigated the public’s outrage against North Korea and demonized Kim Jong Il. In line with this change, right-wing journalism defined Japanese people who worked to improve Japan-DPRK relations as “pro–North Korean groups,” whether the groups were intellectuals, politicians, or government officials.34 There were two organizations behind the North Korea bashing: DUR and NAR. The families association of abductees, AFV, echoed the calls by NAR and by DUR for Tokyo’s imposition of sanctions on Pyongyang. It is known that NAR is represented by Sato Katsumi, the director of Gendai Koria Kenkyusho (Modern Korea Institute), and that its regional groups are linked to Nippon Kaigi, Japan’s largest nationalist organization, which has rejected postwar pacifism, embraced the imperial system, and defended Japan’s past wars in Asia.35 Although aware of the ideological orientation of NAR and Sato Katsumi, the families of the abductees nevertheless had to rely on these organizations in a desperate attempt to raise public awareness about the abduction issue.36 Given this highly charged atmosphere, it was considered political suicide for Japanese politicians to state that the nuclear issue was more important than the abduction issue.37 When the Iraq War broke out in March 2003, Japan’s post-summit discourse spiraled into one whose core assimilated to the American-made image of the “War on Terror.”38 In the public discourse, particularly in the media, the word terror became a central notion, in which the abduction issue came to occupy a significant part, even though the traditional meaning of terror differed from its meaning relative to the North Korean kidnapping of Japanese citizens.39 The Japanese government’s shift in its North Korea policy, attributable mostly to the abduction issue, accorded with the Bush administration’s reliance on coercion when dealing with the North Korean nuclear issue. A month after Prime Minister Koizumi’s Pyongyang visit, North Korea reportedly admitted the existence of a highly enriched uranium (HEU) program on the occasion of Assistant Secretary of State James Kelly’s visit to Pyongyang in October. Although North Korea later denied the admission, the reported HEU brought about the “second nuclear crisis.” In the midst of rising tension in the U.S.-DPRK relationship, Prime Minister Koizumi and President George W. Bush held a summit in Crawford, Texas, on May 23, 2003, and agreed on taking tougher measures to resolve the North Korean nuclear issue.40 Soon, Japan joined the U.S.-led Proliferation Security Initiative to interdict and inspect ships suspected of carrying weapons of mass destruction, an act that apparently targeted North Korea. And the Japanese

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government began to expand safety inspections and searches for illicit goods from and to North Korea. There followed Japan’s preparation of several legal provisions to sanction both North Korea and Chongryon, a pro–North Korean residents organization in Japan. On February 9, 2004, the Diet passed a revision of the Foreign Exchange and Foreign Trade Law, which allowed the government independently to impose trade sanctions on Pyongyang and to ban Chongryon’s remittance to Pyongyang.41 In the same vein, the Tokyo Metropolitan Government, run by Ishihara Shintaro, declared in July 2003 that it would collect fixed-asset taxes from Chongryon facilities, and the Kyoto Municipal Government stated that it had already started reviewing tax breaks enjoyed by the organization after 1976.42 The Japanese government’s coercive stance, prioritizing the abduction issue, surfaced also at the multilateral nuclear talks. At the first round of the Six-Party Talks held in Beijing in August 2003, the Japanese representative not only stressed a no-tolerance policy toward North Korea’s development, possession, and transfer of nuclear capacity, but also suggested that the abduction issue be the precondition to Japan-DPRK normalization. Furthermore, Japan began to strategically raise the abduction issue in international forums, such as the UN General Assembly and an APEC summit meeting. In response, North Korea maintained that the abduction issue had already been resolved and that Japan’s decision to raise the issue at the nuclear talks was counterproductive. The Second Summit and Beyond As the abduction issue prevailed over other issues without showing any progress, the audacious politician Koizumi prepared another visit to Pyongyang. Whereas the first visit had aimed at overall development of the bilateral relationship, including a resolution of the abduction issue, the second visit was to bring families of the returned abductees and to further press Kim Jong Il on the issue of still-missing people. Critics warned that the visit would be illegitimate in that there was no return visit by North Korean leader Kim. But Koizumi made a perilous trip to Pyongyang again on May 22, 2004, declaring that he would resolve all pending issues—the abduction issue, the nuclear issue, and the normalization talks issue. Koizumi returned home with several agreements from Pyongyang: the return of five children of former abductees (two children of Chimura Yasushi and Fukie and three children of Hasuike Kaoru and Yukiko) and an arranged meeting in a third country between Soga Hitomi, returned abductee, and her husband Charles Jenkins and their two children, still in North Korea; a full-scale reinvestigation into the circumstances of ten Japanese (eight reportedly deceased abductees and two alleged abductees); peaceful resolu-

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tion of the nuclear issue; and reconfirmation of North Korea’s moratorium on missile testing. In response, Koizumi pledged Kim Jong Il humanitarian aid, including 250,000 tons of food and US$10 million worth of medical supplies, suspension of Japan’s economic sanctions on the North under the condition of the North’s commitment to the “Pyongyang Declaration,” and a pledge of no discrimination against Koreans living in Japan.43 The Japanese public exhibited again relatively high support for Koizumi’s second visit to Pyongyang. An opinion poll on May 15–16, conducted before the summit, showed that 73 percent of the public supported the summit.44 A survey on May 23, one day after the summit, showed that 67 percent of the public assessed the summit positively and that support of the cabinet had reached 54 percent, a rate significantly higher than the 40 percent approval rate that the cabinet had enjoyed before the summit.45 However, the public’s support for the summit was not followed by a change in public perception about the government’s North Korea policy. The public continued to level severe criticism at the government, for instance that the summit had taken place in only one and a half hours under conditions favoring the North Korean side, and that there was no concrete conclusion that addressed the reinvestigation. In particular, the parents of Yokota Megumi told reporters that the summit had brought about “the worst imaginable results” and that they felt “betrayed [by the government].”46 Other families of the abductees, in the same vein, expressed strong discontent regarding the prime minister’s decision to pledge massive aid to the North before obtaining convincing information about the deceased abductees and the still-missing people. The controversy over the returned remains of Yokota Megumi may be recorded as the worst case of confrontation at the official level of Japan-DPRK relations. The Japanese government officially announced on December 8 that the remains were not Yokota Megumi’s, and in turn, North Korea refuted the announcement, stating that the Japanese government was ignoring Pyongyang’s sincerity. It is noteworthy that the authoritative science journal Nature later wrote an editorial declaring that the DNA test method used for the remains was anything but definitive. Regardless of the credibility of the test results, the issue of Yokota’s remains evolved into an emotional war between the two countries.47 In this deteriorating atmosphere, the LDP-New Komeito ruling coalition and the main opposition Democratic Party of Japan enacted seven War Contingency Laws in the Diet on June 14, 2004. The laws, supplementing a set of three laws enacted a year earlier, were intended to facilitate cooperation between Self-Defense Forces and U.S. forces and to permit Japan’s execution of certain domestic measures in case of an emergency. The laws were formulated long before the abduction issue became an important political consideration, but the timing of the legislation was noteworthy. Along

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with the three laws, the Diet passed a law to enable the government to ban port calls by ships deemed to pose a threat to public safety. The passage of the law seemed a reaction to the Mangyongbong-92, a North Korean ferry shuttling between Niigata and Wonsan.48 Also, the Diet enacted a revised law on March 1, 2005, that required vessels entering Japanese ports to carry liability insurance sufficient to defray expenses incurred by oil pollution. The revised law has served as an instrument that enables Japan to impose economic sanctions on North Korea. Owing to the law, North Korean ships made only twenty-nine port calls in March, down from 115 in March of the previous year. This was a sharp decline in comparison to overall port calls by foreign ships, which decreased to 9,120 from 9,820 in the same period.49 Some observers considered these legal measures a stick with which Japan would force North Korea both to support the reinvestigation of ten missing Japanese and to cooperate over the nuclear issue; others considered the legal measures a simple punishment of the North in the context of Japan’s North Korea bashing.50 The Japanese government, despite these legal measures, tried to find an exit point in the multilateral nuclear negotiations, the Six-Party Talks. On the eve of the fourth round of the talks, scheduled to be held in Beijing on September 13–19, 2005, Prime Minister Koizumi sent to North Korean leader Kim Jong Il a message that voiced his desire for normalization; the message passed through the Japanese representative Sasae Kenichi and then his North Korean counterpart Kim Gye Gwan. Koizumi’s effort seemed to yield fruit. The Joint Statement of the Six-Party Talks not only envisioned principles and frames for the denuclearization of North Korea but also stipulated support for U.S.-DPRK and Japan-DPRK normalization. With this rising tide, the foreign ministries of Japan and North Korea reconnected their hot line. With the governmental channel back up and running, the two countries held two meetings in Beijing in November and December and reached an agreement on the establishment of three committees to participate in normalization talks dealing with the abduction issue, the clearance of history issue, and the nuclear and missile issue. The thirteenth normalization talks, held in Beijing in February 2006, proceeded with the operation of the three committees.51 While the Japanese strategy was to focus on the abduction issue as the precondition to dealing with other issues, the North Korean approach was to call attention to unresolved historical issues, namely, those related to Japan’s colonial rule. The talks ended again simply with each side having identified the other side’s views. The bilateral relations were damaged by the worsening U.S.-DPRK relations, centered on Washington’s financial sanctions on North Korean accounts at Banco Delta Asia, and by the North Korean missile firings. In response to a flurry of news in June that North Korea was assembling the

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multistage ballistic missile Taepodong-2,52 neighboring countries requested that Pyongyang exercise restraint. But on July 5, North Korea defied the requests by firing seven missiles, including a Taepodong-2, on the East Sea (the Sea of Japan, in its Japanese name).53 It was apparent that the tests were intended to startle the United States, which had been ignoring North Korea’s demand that Washington lift its financial sanctions. Alarmed particularly by the repeat of a ballistic missile test within eight years, Tokyo not simply suspended its approach to Pyongyang but also became the prime mover, along with the United States, in drafting a UN Security Council resolution to sanction the North. In an attempt to counter this unfavorable situation, Pyongyang on July 6 allowed Kim Young Nam, former husband of Yokota Megumi, and their daughter Kim Eun Gyong to participate in an interview with Japanese media.54 But the attempt proved to be too late and in vain.

NORTH KOREA POLICY SUBSUMED UNDER THE NUCLEAR TALKS During the tenure of the two prime ministers Abe Shinzo and Fukuda Yasuo (from 2006 to 2008), there have appeared two notable developments. One is that Japan’s North Korea policy has situated itself in the Six-Party Talks mechanism. As the Japanese government desired, a working group for normalization was formed in accordance with the February 13 Agreement at the nuclear talks in 2007. In this working group, Japan and North Korea have been able to address each other’s concerns. The other development is that the United States and Japan have diverged from each other regarding strategic dealings with North Korea. Before the February 13 Agreement, U.S.-Japan cooperation rested on a common strategy, coercion, even if for different reasons. Since the February 13 Agreement, Tokyo has maintained the coercive strategy despite Washington’s sudden shift away from strict coercion. In these developments, Japan has found itself in a dilemma: how to pursue broader national interests and regional security, while coping with empowered domestic forces concerning the abduction issue. Sanctions: A Double-edged Sword Japan’s sanctions on North Korea, which closely followed the missile firings on July 5, 2006 and the nuclear test on October 9, were prepared in advance and applied when Abe Shinzo was in office as chief cabinet secretary (from October 2005 to September 2006) and prime minister (from September 2006 to September 2007). Abe was a leading conservative, nationalist politician among postwar generation politicians. He popularized a slogan “building a beautiful country,” stressed patriotism in education,

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and proclaimed the replacement of the sixty-year-old sengo rejimu (postwar regime). He reiterated his call for revision of the constitution, particularly the war-renouncing Article 9, and for collective security through a strengthened U.S.-Japan alliance.55 Abe rose to the post of prime minister owing to popularity that originated largely from his passionate efforts to transform the abduction issue into an important item on the political agenda. Before his appointment to the position of prime minister, Abe’s harsh stance toward North Korea supplemented his predecessor Koizumi’s audacious diplomatic overture, as shown in an anecdote: on his trip to Pyongyang for the 2002 summit, Koizumi told Abe, “I definitely want you, of the hard-line stripe.”56 Abe’s policy preference for pressure-only over his predecessor Koizumi’s combination of dialogue and pressure clearly appeared in Abe’s cabinet appointments. To his most important posts, Abe appointed people who had been hard-liners on North Korea policy, particularly on the abduction issue. He assigned his closest political ally, Shiozaki Yasuhisa, to the position of chief cabinet secretary and concurrently to the position of minister in charge of the abduction issue; and Abe assigned former finance ministry official Nakayama Kyoko to the position of special advisor in charge of the abduction issue.57 Also, he ordered the establishment of the Headquarters for the Abduction Issue, whose function would be to comprehensively deal with the issue at the governmental level, and appointed himself the head of the organization.58 After the North’s missile firings in July 2006, the Japanese government started using the prearranged measures, chiefly to disconnect Chongryon’s assistance to the North. Within a month, the government rejected a request by five North Koreans to enter Japan, on the grounds that some of the North Koreans were under suspicion of having links to North Korean intelligence activities.59 Also, the government imposed a six-month ban on port calls by the Mangyongbong-92, and began deliberation over restrictions on remittance of money and financial assets to the North.60 With the Foreign Exchange and Foreign Trade Law (revised in 2004), the government heightened its level of surveillance over exports to North Korea via third countries. Furthermore, the government prepared a revision of trade-control regulations that affect information technology and other high-tech products; the revision included a change from “notification” of exports of these products to the Ministry of Economy, Trade, and Industry to “permission” from the ministry.61 In September, the government identified fifteen organizations and one person subject to restrictions under the Foreign Exchange and Foreign Trade Law and banned any transfer of funds and any overseas remittance to them.62 The police started searching suspicious North Korean cargo ships; for example, police raided a ship anchored at Sakai Port in Tottori Prefecture and investigated crew members for possessing two counterfeit US$100 bills.63

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When North Korea conducted an underground nuclear test on October 9, 2006, the Japanese government considered it a threat to Japan’s security, which the July missile tests had already given the appearance of jeopardizing. The cabinet meeting held two days after the test led to a decision to impose a series of sanctions on North Korea.64 Included were a suspension of all North Korean ships’ port calls, stoppage of all North Korean imports, and an expanded ban on all North Korean visitors, including government officials. Because the volume of Japan-DPRK trade had already shrunk before the sanctions took effect and because North Korea’s share in Japan’s trade was so minor, the effect of sanctions on the North Korean economy was not decisive. For instance, the total import volume from North Korea from January to July in 2006 reached only US$55.8 million. For North Korea, the decrease in the bilateral trade was offset by a sharp increase in trade with China and South Korea.65 However, if counted together with the ban on remittance from the pro–North Korean Chongryon, the sanction might have doubled the foreign currency shortage in Pyongyang. In January 2007, the government proposed a revision of Customs Law to the Diet in order to curb illegal trade with North Korea amid the economic sanctions. The proposed bill increased the punishment for violators of the law: the penalty for a false declaration about shipment rose from up to a year in prison or a one million yen fine to five years in prison or a five million yen fine.66 At the United Nations, Japan, along with the United States, introduced sanctions against North Korea. At the initial stage of drafting a UN Security Council resolution, Japan demanded a quotation of Article 42 of UN Charter 7, which stipulates use of force, and called for Chinese and Russian cooperation for the inclusion.67 UN Security Council resolution 1718, even though it excluded the use of force provision, included unprecedented provisions: inspection of vessels and financial sanctions in order to prohibit transfer of WMD-related materials and an export ban on luxury goods in order to pressure North Korean elite who had grown accustomed to such extravagance. In accordance with the resolution, Japan immediately placed an embargo on exports of Japanese luxury products, such as cigarettes and liquor, and on exports of electrical appliances.68 Also, the Japanese government started an inquiry into the feasibility of applying to North Korea the War Contingency Laws, which the Diet had enacted in 2003 and 2004. Furthermore, the Japanese government examined whether or not it should adopt a special law for interdiction and inspection of North Korean vessels in international waters. However, the government found many limitations in both the law enforcement and the possible new legislation regarding interdiction and inspection of North Korean vessels on the high seas. As the then Defense Agency Director Kyuma Fumio noted, it was difficult to define the North

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Korean nuclear test an emergency covered by the War Contingency Laws. The laws revealed limits in Japan’s permissible use of force against suspected North Korean vessels. Given the limits, segments of the LDP discussed legislating a special law for the inspection of North Korean vessels; but support for this proposal soon waned because of its possible breach of the constitution. Japan’s only viable option was to rely on U.S. forces to interdict and inspect North Korean vessels; that is, the Self-Defense Forces (SDF) could provide the U.S. forces with logistical assistance, such as use of ports and airbases, fuel for American warships, and protection of Japan-based U.S. military facilities. Even in this case, the SDF could not assist the U.S. forces if the latter came under attack by North Korea, because the Japanese constitution excludes the right for collective self-defense.69 What were the sanctions intended to achieve? Was the aim to pressure North Korea and curb its provocative behavior? Certainly, the sanctions aimed at that. The sanctions, however, had a distinct political function on the domestic scene. The Japanese government took seriously the demands from abductees’ families and from related organizations, as well as the public’s loathing for North Korea. Over the years since the 1997 publicization of the abduction issue and then the 2002 North Korean admission of culpability in the abductions, the families have received the support of both the DUR and the NAR and have successfully attracted international attention as well as domestic attention to the issue; in turn, the groups have kept pressure on the government concerning North Korea policy.70 Of great importance in this process was the story of Yokota Megumi, a girl whom North Korea kidnapped in 1977, when she was thirteen, and who reportedly died in North Korea. Megumi’s mother Yokota Sakie’s visit to the White House and meeting with President George W. Bush on April 28, 2006, became one of the top news stories in Japan and the United States. A film entitled “Abduction: The Megumi Yokota Story” was released and honored with many awards at international film festivals in 2006. Koike Yuriko, special national security advisor to Prime Minister Abe, attending the World Economic Forum held in Davos in January 2007, brought this film and showed it to attendees of the forum.71 And American singer Noel (“Paul”) Stookey dedicated “Song from Megumi” to her parents in February 2007.72 Tapping into the increased public awareness, the Web site of Japan’s ministry of foreign affairs presented in April 2006 a file entitled “Abductions of Japanese Citizens by North Korea: Awaiting the Day When We Will Be Reunited.” And posted on the Web site of kantei (the prime minister’s office) was a video clip entitled “Abduction: Unforgivable Crime,” which was translated into eight languages. These occasions were perhaps the first time official Japanese government Web sites featured files with such unusually emotional titles. In the same vein, in November 2006 Minister of Internal Affairs and Communications Suga Yoshihide, under the Broadcast Law that had taken

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effect in 1950, ordered the NHK to increase its shortwave reporting of North Korea’s abduction of Japanese; the minister ignored criticisms that the order would threaten freedom of the press. The minister defended the order on the grounds that it was based on Article 33 of the law, which allows the state to instruct NHK to air overseas programs on issues deemed important to the country, and that the order might send important messages to living abductees in North Korea.73 In this context, the government’s sanctions on North Korea resonated with many abductees’ families and their supporters, who considered the sanctions “absolutely reasonable.”74 Bilateral Talks in the Six-Party Talks Mechanism With the adoption of the February 13 Agreement at the Six-Party Talks in 2007, Japanese policy toward North Korea and the ensuing bilateral relations entered a new phase, featuring a close connection to the multilateral nuclear talks. The agreement laid out initial but important steps for denuclearization: first, North Korea should shut down its nuclear facilities and, later, should disable the facilities and completely declare its nuclear program. And the agreement called for establishing five working groups, one of which would be the “working group for normalization of DPRK-Japan relations.” This working group is what Japan had sought as a last resort in efforts to resolve the abduction issue, which had been crucial to Japan but secondary in the nuclear talks.75 Indeed, the working group created space in which the two countries could continue normalization talks, otherwise an impossible thing owing to the recently worsened relationship. But the Japanese position continued to be cold on this development in the nuclear talks. Japan had already decided that, if the scheduled Six-Party Talks in February yielded no progress in the abduction issue, Japan would provide North Korea neither food aid nor energy aid.76 Foreign Minister Aso Taro stated on the eve of the talks that “even if we are asked to provide energy, money, or food [to the North], we won’t easily contribute it”; Prime Minister Abe reiterated on February 8, the date on which the talks resumed, that progress in the abduction issue was the precondition to energy aid.77 Furthermore, in April the cabinet approved a six month extension of the sanctions on North Korea. The decision reflected two things: first, Japan’s suspicion of North Korea’s apparent failure to meet the deadline for the shutdown of nuclear facilities—a failure that stemmed from a technical delay of Banco Delta Asia’s transferring of North Korean accounts to Pyongyang—and second, Japan’s impression that North Korea lacked a “sincere attitude” in addressing the abduction issue.78 Japan’s prioritizing the abduction issue indeed was unable to produce progress in the issue per se. The normalization talks in Hanoi in March 2007, which were held for the first time as a working group for DPRK-Japan

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normalization in the frame of the Six-Party Talks, ended with reiteration of each side’s own important issue: the abduction issue for Japan and the compensation issue related to Japan’s colonial rule for North Korea (see Table 4.2). In the meantime, there was political change in Japan. Suffering from declining popularity, the Abe cabinet lost the upper house election held on July 29. Of its many campaign strategies, the LDP played the North Korea–bashing card to incite popular sentiment and to ensure support for the ruling LDP-New Komeito coalition.79 But voters’ attention concentrated on the recent scandals related to pensions and political money; in the end, the opposition, the Democratic Party, enjoyed a landslide win. The election results proved that a campaign resting on the abduction issue’s emotional appeal but lacking a direction forward on the issue could not guarantee electoral victory. The LDP’s defeat in the election, and the ensuing cabinet reshuffle, brought a slight change in the government’s approach to North Korea. Under an ameliorated atmosphere, the normalization talks took place in Ulan Bator in September, which functioned again as a working group of the Six-Party Talks. Whereas the two sides still differed from each other regarding the prioritization of issues (the abduction issue and the history clearance issue), both sides pledged a continuation of discussions and a

Table 4.2 Different Positions at the Working Group Meeting in Hanoi, March 2007 Agenda

Japan’s position (represented by Ambassador Haraguchi Koichi)

North Korea’s position (represented by Ambassador Song Il Ho)

Abduction issue

• No normalization without resolution of the issue • Return of survivors, overall reinvestigation into the incident, extradition of criminals, investigation into still-missing people

• Already-resolved issue • Reinvestigation into the still-missing people depending on Japanese stance over the economic sanctions and the history issue

History issue

• Following the Pyongyang Declaration (abandonment of claim type, adoption of economic-cooperation type)

• Discussion about forced laborers and comfort women, separate from economic cooperation

Source: Jung Ho Bae, Abe chongkwo˘n u˘i kungnae cho˘ngch’i wa taeoejo˘llyak mit taebukjo˘llyak [Abe Administration’s Domestic Politics, External Strategy, North Korea Policy] (Seoul: KINU, 2007), 110.

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deepening of understanding. It is noteworthy that Mine Yoshiki, Japanese ambassador in charge of normalization talks, expressed a softened position, saying, “I said that for us, a solution to the abduction issue is essential . . . and that both of those topics must be dealt with.”80 Mine’s position reflected a minor but nuanced change in Japanese stance after the ruling coalition’s loss in the upper house election. Abe’s abrupt resignation on September 12 and the inauguration of Fukuda Yasuo as prime minister on September 25 raised expectations about progress in Japan-DPRK relations. Declaring that “I am willing to resolve the issue with my full determination” during the party president election, Fukuda suggested that he adopt flexible means to find an exit point on the issue.81 In this context, the North Korean ambassador to the normalization talks, Song Il Ho, welcomed the inauguration of the new cabinet led by Fukuda.82 However, under the pressure of the pending abduction issue, the Japanese government extended for another six months its economic sanctions on North Korea,83 which immediately prompted North Korea’s strong protest.84 This decision on the extension demonstrated the limitations of Japan’s policy choice. Despite Fukuda’s preference for flexibility, Japan’s North Korea policy was consistent in its application of coercive measures and has centered on the abduction issue. The Japanese sanction-only strategy has been continued by the succeeding prime minister, Aso Taro, who rose to power in September 2008 owing to Fukuda’s sudden resignation. But the strategy has lost its potency in the mechanism of multilateral talks because of a shift in the U.S. strategy to engagement from 2007.

CONCLUSION This chapter sheds considerable light on two critical issues: the trajectory of worsening relations between Japan and North Korea and, what may be even more subtle, the dilemma of Japan’s coercive strategy. Japan’s policy has changed over time. The abduction issue has prevailed in the Japanese political arena and, consequently, has dominated the Japanese government’s North Korea policy. Leaving behind broader national interests both in bilateral and multilateral contexts, the Japanese government has been forced to concentrate on the abduction issue in Japan-DPRK relations. With a high stake in the North Korean nuclear issue, Japan has participated in the Six-Party Talks, but has focused on sanctions. Japan’s rejection of further engagement—beyond participation in the talks—was particularly acute at the critical juncture where progress was made after the February 13 Agreement in 2007. As noted in this volume’s introductory chapter, each country’s policy priorities and objectives have differed from those of every other country, but all the countries, with the exception of Japan,

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have stepped up the degree of engagement for the common objective of denuclearization. There are two policy implications of Japan’s present stance. First, progress in the abduction issue is closely linked to progress in the denuclearization of North Korea. North Korea appears to be postponing its cooperation in the resolution to the abduction issue until the Six-Party Talks produce a certain progress that guarantees North Korea long-desired political and economic payoffs. Therefore, if Japan continues to rely on sanctions on North Korea and to consider resolution of the abduction issue the precondition to normalization, then Japan appears unlikely to achieve its objective in the bilateral relations and likely to remain a negotiation breaker in the multilateral mechanism of the Six-Party Talks. Second, Japan’s North Korea policy is a unique case that reflects profound naiatsu (pressure from inside), in contrast to the pattern of Japan’s cold war foreign policy, which has yielded to gaiatsu (pressure from outside), particularly from the United States. This naiatsu indeed interferes with the government’s articulation of a strategic shift with regard to the North Korea policy. The important question for the Japanese government is how to cope with increased domestic pressure stemming from the abduction issue, as much as it is how to deal with North Korea.

NOTES 1. Michael Schaller, Altered States: The United States and Japan since the Occupation (Oxford: Oxford University Press, 1997), 114–23. 2. Jung Ho Bae, “T’alnaengjo˘ngi Pugil kwangae u˘i pyo˘ncho˘n kwa Ilbon u˘i tae Pukhan ‘taehwa wa o˘kji’ cho˘ngchaek” (Changes in the Japan-DPRK Relationship in the Post–Cold War Era and Japan’s Dialogue-and-Coercion Policy toward the DPRK), Korean Journal of International Studies, 39, no. 1 (1999): 115–35. 3. Don Oberdorfer, The Two Koreas: A Contemporary History (New York: Basic Books, 1997), 213–18. 4. For the details of the visit, see Tanabe Makoto, “Yato gaiko no rekishiteki seika: Niccho kankei no atarashii jyuritsu” (The Historic Diplomatic Achievement by the Opposition Party: Establishment of a New Era in the Japan-DPRK Relationship), Gekkan Shakaito (Japan Socialist Party Monthly) (December 1990). 5. Wada Haruki and Takasaki Soji, Kensho Nicchokannkei 60 nensi (Verification of Sixty Years of Japan-DPRK Relations) (Tokyo: Akashi Shoten, 2005), 200. 6. Oberdorfer, The Two Koreas, 222. 7. North Korea had demanded war reparations from Japan at the first normalization talks on the grounds that the guerrilla warfare led by Kim Il Sung in Manchuria in the 1930s was a war between Korea and Japan. But the North Korean side later withdrew this argument. Asahi Shimbun, February 2, 1991; Asahi Shimbun, February 3, 1992. 8. Asahi Shimbun, May 15, 1992; Asahi Shimbun, November 5, 1992.

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9. The amount corresponded to five hundred million dollars that Japan had paid to South Korea in 1965 for normalized relations between the two states. 10. Right after Hwang’s defection, there temporarily emerged new tension between the two Koreas. But with the North Korean foreign ministry spokesman’s February 17 statement that the “DPRK would not care about defection of betrayers,” the tension seemed to abate five days after the incident. 11. Sankei Shimbun on March 13, 1997, treated as headline news the abduction of Yokota Megumi and of other Japanese citizens. Pyongyang Broadcast, the North Korean state broadcast, refuted on March 18 the Sankei report as a vicious political conspiracy and denounced the report as “garbage” journalism. 12. Wada Haruki, Chosen yuzi o nozomunoka (Expecting an Emergency in the Korean Peninsula?) (Tokyo: Sairyusha, 2002), 115–16. 13. Wada Haruki and Takasaki Soji, Kensho Nicchokannkei 60 nenshi, 117. 14. Takasaki Soji, Kensho Nicchokosho (Verification of Japan-DPRK Negotiations) (Tokyo: Heibonsha, 2004), 124. 15. Wada Haruki, Chosen yuzi o nozomunoka, 119. 16. David Leheny, Think Global, Fear Local: Sex, Violence, and Anxiety in Contemporary Japan (Ithaca: Cornell University Press, 2006), 158–60. 17. Korea Times, September 20, 1999. 18. The Japanese team was led by the director of the Northeast Asian Affairs Division in the Foreign Ministry, Umemoto Kazuyoshi, and the North Korean team was represented by the director of the Japan Affairs Division in the Foreign Ministry, Song Il Ho. 19. Dong-a Ilbo, December 3 and December 4, 1999; Asahi Shimbun, December 1, December 2, December 3, and December 4, 1999. 20. Wada Haruki, Chosen yuzi o nozomunoka, 122. 21. Asahi Shimbun, April 7, 2000. 22. Japan Times, August 25, 2000; Asahi Shimbun, August 25, 2000. 23. Japan Times, October 5, 2000. 24. BBC News, November 29, 2001. http://news.bbc.co.uk/1/hi/world/asiapacific/1682527.stm. 25. BBC News, December 23, 2001. http://news.bbc.co.uk/2/hi/asia-pacific/ 1725934.stm. 26. Japan Times, November 19, 2007. 27. For more details about the secret contacts, see Yoichi Funabashi, The Peninsula Question: A Chronicle of the Second Korean Nuclear Crisis (Washington, DC: Brookings Institution Press, 2007), 8–15. 28. Gavan McCormack and Wada Haruki, “Forever Stepping Back: The Strange Record of 15 Years of Negotiation between Japan and North Korea,” in The Future of US-Korean Relations: The Imbalance of Power, ed. John Feffer (London: Routledge, 2006), 83–84. 29. Mainichi Shimbun, September 23, 2002. 30. For more details about the twelfth normalization talks, see http://www. mofa.go.jp/region/asia-paci/n_korea/nt/round12.html. 31. Japan Times, October 27, 2002. 32. Japan Times, December 23, 2002.

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33. Yamamuro Hideo, “Terebi hodo ni tsuite omou” (Thinking about TV Broadcasting) in Donaru Niccho kokko kosyo (What the Japan-DPRK Normalization Talks Will Be?), ed. Citizens Council for the Promotion of Japan-DPRK Normalization (Tokyo: Sairyusha, 2003), 43–46. 34. The main targets were Nonaka Hiromu, Nakayama Masaaki, Yoshida Yasuhiko, Tanaka Hitoshi, and Wada Haruki. See Wada Haruki, “Ushinatta kanosei no kaifuku o: Iraku senso no nakade Nicchokosyo o kangaeru” (Recovering a Lost Opportunity: Thinking about Japan-DPRK Negotiations in the Wake of the Iraq War], Sekai (May 2003): 136–44. 35. See http://nyt.trycomp.com:8080/modules/news/article.php?storyid=5827. 36. In this context, Yokota Shigeru, whose daughter Megumi is alleged to have committed suicide after having been abducted by North Koreans, stated, “We know Sato is a rightwinger, but we need all the help we can get from whoever we get it from.” Japan Times, April 15, 2003. 37. International Crisis Group, “Japan and North Korea: Bones of Contention,” Crisis Group Asia Report, No. 100 (June 27, 2005), 11. 38. Leheny, Think Global, Fear Local, 157, 167. 39. An exemplary book in this regard is Nishioka Tsutomu, Tero kokka: Kitachosen ni damasareruna (Terrorist State: Don’t Be Cheated by North Korea) (Tokyo: PHP Kenkyusho, 2002). 40. For the joint press conference at the U.S.-Japan summit, http://www. whitehouse.gov/news/releases/2003/05/20030523-4.html. 41. The revision removed a restriction stating that the Japanese government may apply trade sanctions to another country only with the authorization of a UN Security Council resolution. Mark E. Manyin, Emma Chanlett-Avery, and Helene Marchart, “North Korea: A Chronology of Events, October 2002–December 2004” CRS Report for Congress, January 24, 2005, 7; Hong Nack Kim, “Japanese-North Korean Relations under the Koizumi Government,” in North Korea: The Politics of Regime Survival, ed. Young Whan Kihl and Hong Nack Kim (Armonk, NY: M. E. Sharpe, 2006), 170. 42. Japan Times, July 26, 2003. 43. Japan Times, May 23, 2004. 44. Mainichi Shimbun, May 17, 2004. 45. Asahi Shimbun, May 24, 2004. 46. Japan Times, May 23, 2004. 47. For details about the controversy over the remains, see McCormack and Wada, “Forever Stepping Back,” 88–93. 48. Japan Times, June 15, 2004. 49. Japan Times, April 6, 2005. 50. Richard P. Cronin, “The North Korean Nuclear Threat and the U.S.Japan Security Alliance: Perceived Interests, Approaches, and Prospects,” Fletcher Forum of World Affairs 29, no. 1 (Winter 2005): 66. 51. Asahi Shimbun, February 5, 2006. 52. Yomiuri Shimbun, June 16, 2006. 53. Yomiuri Shimbun, July 6, 2006; Mainichi Shimbun, July 6, 2006. 54. Japan Times, July 7, 2006.

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55. See his book Utsukushii kuni (Beautiful Country) (Tokyo: Bungeishunjyu, 2006). 56. Japan Times, September 18, 2002. 57. Kyodo News, September 27, 2006. 58. Asahi Shimbun, September 30, 2006. 59. Japan Times, July 26, 2006. 60. Japan Times, July 29, 2006. 61. Japan Times, July 28, 2006. 62. Japan Times, September 20, 2006; September 24, 2006. 63. Japan Times, September 24, 2006. 64. Yomiuri Shimbun, October 12, 2006; Sankei Shimbun, October 12, 2006. 65. Lee Suk, Pukhan kyo˘ngje u˘i taeoe u˘ijonso˘ng kwa Hanguk kyo˘ngje u˘i yo˘nghyangryo˘k (Foreign Dependence of the North Korean Economy and the Influence of the South Korean Economy) (Seoul: KINU, 2006). 66. Japan Times, January 21, 2007. 67. On his trip to Washington, DC, in early October 2006, Japan’s vice foreign minister Yachi Shotaro agreed with the United States undersecretary of state Nicholas Burns on the need for tough sanctions on North Korea if the latter were to go ahead with a nuclear test. They mentioned Chapter 7 of the UN Charter, which stipulates international economic sanctions and military options. Japan Times, October 6, 2006. 68. Yomiuri Shimbun, October 16, 2006. 69. Mark J. Valencia, “Maritime Interdiction of North Korean WMD Trade: Who Will Do What?” Northeast Asia Peace and Security Network, Policy Forum Online, November 3, 2006, http://www.nautilus.org/fora/security/0698Valencia.html. 70. For a conceptual discussion of logrolling, see Christopher W. Hughes, “The Political Economy of Japanese Sanctions towards North Korea: Domestic Coalitions and International Systemic Pressures,” Pacific Affairs 79, no. 3 (Fall 2006): 45–459. 71. Bloomberg, January 26, 2007, http://www.bloomberg.com/apps/news?pid=n ewsarchive&sid=aY8LvfjvUn_0. 72. Japan Times, February 13, 2007. 73. To this order, the Japan Newspaper Publishers and Editors Association protested, stating that “although the order is based on the law, it cannot be ignored from the standpoint of freedom of reporting . . . the order goes beyond conventional practices and specifically designates what to broadcast.” Japan Times, November 9, 2006; November 11, 2006. 74. Japan Times, October 1, 2007. 75. Japan Times, February 9, 2007. 76. Kyodo News, February 3, 2007. 77. Japan Times, February 7, 2007. 78. Japan Times, April 11, 2007. 79. Jung-Ho Bae, “Analysis of the July 29 Elections in Japan” (in Korean), Situation Analysis 2007-10, Korea Institute for National Unification, 2007. 80. Japan Times, September 6, 2007. 81. Japan Times, September 18, 2007.

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82. Japan Times, October 12, 2007. 83. This six-month extension in October 2007 was the second time, following the April extension of the sanction originally imposed in October 2006. The cabinet under Fukuda extended the sanction for another six months in April 2008 despite recent progress in Pyongyang’s denuclearization. 84. Choson Shinpo, September 10, 2007.

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FIVE

RUSSIA AND NORTH KOREA The Dilemma of Engagement Leszek Buszynski

For Russia, there is no option other than to pursue an engagement policy with North Korea, for reasons related to geographical proximity as well as geopolitics. After the collapse of the Soviet Union in December 1991, Russia lost interest in North Korea, which was viewed as a vestige of Russia’s own Stalinist past. It was a nagging reminder of the criminal excesses of an oppressive political system that the Russians had at last managed to cast off. The first Korean nuclear crisis during 1993–94 revealed the danger of a conflict on the Korean Peninsula and that Russia could not simply remain indifferent. Proximity to the Korean Peninsula was an important factor in the reassessment of North Korea for Russian foreign policy that was initiated in the second Yeltsin administration from 1996 to 1999. Putin later revived Russia’s relationship with North Korea and maneuvered to ensure that Russia could reclaim a presence on the Korean Peninsula. The dilemma for Russia appeared when the second nuclear crisis erupted after the disclosure of the highly enriched uranium (HEU) nuclear program in October 2002. The Bush administration abrogated the 1994 Agreed Framework which had terminated the first nuclear crisis; the North then ejected the International Atomic Energy Agency (IAEA)’s inspectors from its nuclear facilities in December, withdrew from the Treaty on the Nonproliferation of Nuclear Weapons (NPT) for the second time on January 10, 2003, and threatened to develop nuclear weapons. Russia once again faced the danger of conflict

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on the Korean Peninsula, this time triggered by America’s neoconservatives who had threatened preemption to eliminate the North’s nuclear program. For Russia, engagement with the North was a natural response to prevent the situation from deteriorating and, above all, to head off any attempt by the Bush administration to resolve the issue by force.

ENGAGEMENT The engagement versus isolation debate is one that was relevant to the American political context when the Republicans reacted angrily to what they regarded as the Clinton administration’s appeasement of the North. Outside the American political context the debate was of very limited relevance for national policies since engagement was the de facto policy pursued by the other major actors, except perhaps Japan. These actors had little interest in isolation or the punitive strategies espoused by the neoconservatives of the Bush administration. China had supported the North with economic assistance and food aid and had attempted to mediate between the Bush administration and the North, particularly after Hu Jintao assumed office in 2003. Under President Kim Dae Jung, the South over 1998 to 2002 pursued a “Sunshine policy” of reducing tensions on the Korean Peninsula which was adopted by his successor in 2003, Roh Moo Hyun. Japan had attempted to engage the North when Prime Minister Junichiro Koizumi visited Pyongyang in September 2002, but the revelations of the abductions resulted in a public backlash which severely circumscribed Japanese policy toward the North. Russia, China, and the South attempted to influence the Bush administration to repudiate force as a solution, and to resolve the nuclear issue by adopting an engagement policy. Engagement can have different meanings for the actors concerned and has often been used as an antonym to isolation and containment without clear definition of the obligations for the parties concerned. Engagement should not be confused with dialogue, which is compatible with isolation, and according to which economic and political interaction would be reduced to the minimum. Cold war dialogue between the United States and the Soviet Union was intended to resolve particular issues, such as the stability of the strategic nuclear balance, but otherwise was not intended to change either one of the parties. Engagement, however, involves not only regular dialogue but incentives for the target state to change its policies or behavior in desired ways. Those incentives might include the promise of extensive economic aid and investment, humanitarian assistance to alleviate famine and disease, as well as assurances of the target state’s security, which might be incorporated in a nonaggression pact or a treaty. The critical issue is how an engagement policy would be related to a target state’s nuclear program. Engagement may entail the offering of incentives for the target state

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to accept international monitoring of its nuclear program, or to surrender it entirely. In this sense engagement may come in three forms: The first is conditional engagement, in which the incentives would follow after the target state has agreed to and accepted international monitoring, or has agreed to dismantle its nuclear program; the second is staged engagement, when the benefits would be offered in phases in response to the dismantling of the nuclear program, which would follow a previously agreed schedule; the third is unconditional engagement, when the target state would receive the benefits first, and then as a product of a general improvement in relations would later surrender its nuclear program. The debate about engagement has been obfuscated by popular frustration with the Bush administration and its propensity for risk-taking strategies, which have failed to prevent the inexorable development of the North’s nuclear weapons program. The Bush administration, beginning in January 2003, resorted to conditional engagement which demanded that the North agree to renounce its nuclear program before the benefits would be provided. U.S. Deputy Secretary of State Richard Armitage visited Tokyo in January 2003 and revealed that the United States would consider a “comprehensive deal” with the North, which would include the possibility of a nonaggression treaty or other security assurances from the United States if the North dismantled its nuclear weapons programs.1 The Bush administration settled on the demand for comprehensive, verifiable, and irreversible dismantlement (CVID) as a condition before the benefits could be extended to the North. The Chinese and South Korean understanding of engagement was ambiguous and veered from the unconditional variety to an acceptance of staged engagement, depending on the state of negotiations and progress in the North’s nuclear program. China and the South believed that the management of relations with the North required the termination of the hostile policies adopted by the Bush administration, and also economic support for the North, which would encourage it to open up to the outside world. Within this context the nuclear issue would be eventually resolved if the threat posed by the Bush administration were removed. Russia revealed a similar ambiguity regarding engagement but supported China and South Korea, to soften the American attitude toward the North. Russia’s position was complicated by its secondary status in the negotiations relating to the North, which was a product of its relative inability to influence the major actors, the United States and the North.

RUSSIA’S INTERESTS IN THE KOREAN PENINSULA Engagement was Russia’s means to secure certain traditional as well as contemporary interests in the Korean Peninsula. Traditional interests include the effort to prevent a hostile power from dominating the peninsula in

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a way that would threaten Russia’s Far East. For this reason Russia was enticed into a disastrous war with Japan from 1904 to 1905 which was basically a struggle for control of the Korean Peninsula. A similar interest has underlined Russia’s attitude toward the American military presence in the South, which had motivated Soviet support for Kim Il Sung’s regime in the North, established with Soviet assistance in 1948. Russia has indeed been working to ensure that the Korean Peninsula would not fall under the influence of any one of the external powers, and that there would be no American troops along its Far Eastern borders.2 It has feared the emergence of an unpredictable nuclear power along those borders, which could trigger the polarization of the region and Japanese remilitarization. Russia also sees in the North a means of balancing against the unipolar world created by American hegemony, particularly since the Clinton administration ignored Russian interests over the former Yugoslavian conflict from 1995 to 1999. Indeed, the pro-Western group that initially controlled Russian foreign policy was removed after Foreign Minister Andrei Kozyrev was sacked in January 1996. His replacement was Yevgenni Primakov, who presided over a return to the Soviet theme of multipolarity and opposition to American unilateralism, which included a reassessment and upgrading of the relationship with North Korea.3 Russia’s engagement policy toward the North includes conflicting interests that may not always be reconciled. To be assured of influence over events on the Korean Peninsula, Russia requires a close relationship with the North in the way promoted by President Putin, who has made a special effort to befriend Kim Jong Il. Russia’s only influence over the North was the relationship Putin revived and cultivated, which could be jeopardized by open opposition to the North’s actions and overt pressure for its denuclearization. Russia was able to avoid making an obvious choice between the relationship with the North and its denuclearization as long as negotiations within the Six-Party format promised to resolve the nuclear issue. Russia’s engagement policy brought with it no real influence over the actions of the North, which continued to pursue its own plans irrespective of Russian concerns. While Russia was committed to engagement, it could secure a position on the Korean Peninsula but would have limited ability to prevent the North from developing its nuclear weapons program.

BEFRIENDING THE NORTH Even before Putin emerged as acting president in December 1999 the Russian Foreign Ministry upgraded the relationship with the North to restore some balance in Russian policy, and to correct the excessive tilt toward the West. Yeltsin was prepared to see the 1961 Soviet Treaty of Friendship with the North lapse because of his emotional repugnance toward the

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regime. South Korea also objected to the continuation of the treaty and even demanded its formal denunciation by the Russians. The Russian Foreign Ministry in January 1992 informed the North that Article One of this treaty, which bound Russia to the North’s defense in case of war, would be limited to cases of unprovoked attack on the North. Before the expiry of the twenty-five-year treaty in 1996 the Foreign Ministry negotiated a new version, which was agreed to on March 17, 1999.4 Renamed as a Treaty of Friendship, Good Neighborly Relations, and Cooperation, it was signed on February 9, 2000, when Foreign Minister Igor Ivanov visited Pyongyang. The North wanted to include in the treaty a nuclear guarantee of its security, which the Russian side naturally resisted. Russia did agree, however, to make the North a partner in negotiations over ballistic missile (BM) technology and BM proliferation.5 For the Russians the revised treaty was a means of consultation and communication with the North, and an institutional link with the regime that would justify their participation in the negotiations over the Korean Peninsula.6 The Russians were quick to stress that this was not an exclusive relationship, and that it would not be allowed to affect Russia’s relationship with the South. Their intention was to regain a balanced position on the Korean Peninsula, which had been lost during the early Yeltsin period. It was also understood that there would be some incompatible interests in the relationship, as Russia would not provide the North with extensive economic assistance as the Soviet Union had, and the Russians stressed that trade with the North would be conducted according to market prices. Putin subsequently revised Russia’s foreign policy doctrine, which heralded a new activism in relation to the Asia Pacific region. Foreign Minister Igor Ivanov introduced the revised doctrine in July 2000, stressing Russia’s position as a “great power” in world society and as one of the influential “centers of power” in the world today. The new doctrine stated that Russian integration into the Asia Pacific region was necessary for the economic development of Siberia and the Far East, and that Russia would develop “close bilateral relations” with important Asian powers China, India, and also Japan.7 Indeed, it was understood that Russia would not be taken seriously in the Asia Pacific region unless it had a presence there and the only possible move it could make was on the Korean Peninsula. Its relations with Japan were blocked by the territorial dispute over the Northern/Southern Kurile Islands and it had no other compensating relationship in the region, with ASEAN or with other regional bodies, that would justify its involvement in regional affairs. For these reasons Putin visited Pyongyang over July 19–20, 2000, which was the first time for a Russian leader, an indication of the Russian president’s upgraded priorities not only in the Korean Peninsula, but the Asia Pacific region as well. Media commentary on the visit noted that its main purpose was to remind Russians that they were a “great power”

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with global interests. More specifically, Putin intended to involve Russia in the negotiations over the Korean Peninsula, which would allow it to claim participatory rights in other Asia Pacific negotiations. It was also reported that Putin sought to act as a mediator between North and South, though at that stage Russia’s relationship with the South and its limited role in the peninsula provided an insufficient foundation for such ambitions.8 The Russian press reported that Russia was the only country in the G-8 that could maintain a dialogue with the North, and that it was the most active in the regulation of the Korean problem.9 Given that China was not a member of the G-8, this claim could be confidently made. Another significant reason for Putin’s visit was to recruit the North as an ally against American plans to introduce a national missile defense (NMD) system and to deploy BMD in South Korea and possibly Taiwan. On July 19, at a press conference in Pyongyang, Putin declared that he had Kim Jong Il’s agreement to terminate the BM program if the United States would launch the North’s satellites. He reiterated this claim at the G-8 meeting in Okinawa over July 22–23. Kim Jong Il later publicly repudiated the agreement, which left Putin quite embarrassed. There had been no miscommunication between the two leaders, as correspondents from Itar Tass and the Associated Press confirmed Kim’s words.10 Kim had demonstrated a penchant for capricious behavior which may have been intended to catch opponents and allies off balance to maximize his freedom of action and avoid entrapment. The Russian side, indeed, learned from this experience. The Russians also moved to improve ties with the South as a necessary step to strengthen their position on the Korean Peninsula. Yeltsin’s visit to Seoul in November 1992 had excited little interest in the South as Russia had nothing to offer in terms of influence over the North. President Kim Dae Jung visited Moscow in May 1999 to obtain support for his Sunshine policy of engagement of the North, but only after he had visited Beijing and Washington, which was an indicator of the South’s priorities at that time. The Sunshine policy, however, offered an opportunity for Russia to restore its influence on the Korean Peninsula as Seoul struggled to prevent its own engagement policy becoming hostage to political changes in Washington. Kim Dae Jung and the Clinton administration adopted similar views of engagement, but after the emergence of the Bush administration in January 2001 Washington could threaten to derail the South’s approach to the North. In this situation Russia could be more appealing to the South as a means of promoting engagement, and as a way of countering opposition from Washington. Putin visited Seoul in February 2001 hoping that the South would be more receptive to Russia if it could demonstrate a closer relationship with the North. In Seoul Putin revealed his intention of activating Russia’s role as an intermediary between North and South, and to exploit the opposition in the South to American plans to deploy BMD. He suggested

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various ways of repaying Russia’s debt of $1.8 billion to the South, including the sale of military equipment and aircraft. He also proposed a railway connection between the Korean Peninsula and the Trans Siberian Railway which would provide the South with a faster route to Europe for its export products.11 The railway project would connect Busan with European markets and would reduce delivery time from thirty to forty days for sea transport to between thirteen and eighteen days. Difficulties included the prohibitive $3.3 billion cost, the fact that Russian railways have a different gauge from Korean or European, and the dilapidated state of the North’s rail network. Moreover, Southern exporters objected to excessively high Russian tariffs on cargo transportation, which still made it cheaper to ship by sea.12 Russia continued to cultivate the relationship with Kim Jong Il who visited Moscow for the first time in a three-week-long trip by train from July 26 to August 18, 2001. For Putin’s diplomatic purposes it was important to develop a personal relationship with the North Korean leader but the more liberal sections of Russia’s post-Communist society were appalled. An Izvestiya headline proclaimed that the “specter of Communism” haunted Russia and that the North was “one preserved monument to Stalinism” and a reminder of Russia own past. Kim’s intention in visiting Russia was to “lengthen the life of one of the most odious regimes on the planet” by obtaining Putin’s political support.13 Russia’s liberals and democrats have been critical of the engagement policy but they have had little influence over foreign policy. In any case the Russian press anticipated no new developments from Kim Jong Il’s visit, as Moscow refused to write off the North’s $3.2 billion debt from Soviet times, despite the North’s entreaties. In an interview with Rossiskaya Gazeta in which he supplied written answers, Kim stressed the importance of uplifting relations with Moscow to a new level and that the new treaty signed in 2000 was the foundation of their relationship. He noted that the Bush administration was bent on isolating the North and that BMD “has joined us together,” especially since North Korea had been earmarked as a possible target for American attack. Kim stressed that “our BM program is for peaceful purposes” by way of justification for his position.14 Putin indeed was successful in reviving the relationship with the North and in responding to the North’s anxieties about the Bush administration’s unilateralism. Putin had the status within Russia as one of the few world leaders who supported regular contacts with Kim Jong Il, and who had a clear understanding of the North’s problems.15 The economic reforms announced by Pyongyang in July 2002, according to which prices and wages in certain areas were freed, were seen in a very positive light in Moscow. They were regarded as the North’s first steps toward a market economy, the start of a serious effort to open the country to neighbors and the outside world. In Moscow it was speculated that Kim’s first visit to Russia in 2001 may have

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been the basis for the reforms, as he saw the positive and negative sides of the Russian experience. In this context it was thought that Russia had a special significance for Kim Jong Il because it had emerged from a similar communist past. Russia presented the North with an alternative to China and the assurance that it would be a safe partner. Russians thought that Kim could use the “Russia card” to press China to offer more economic support without becoming beholden to the Chinese, and as a way of escaping Chinese control.16

THE SIX-PARTY TALKS Russia was excluded from the Four-Party Talks that were conducted in Geneva from August 1997 to August 1999 between the United States, China, and the North and the South. The Russian Foreign Ministry proposed a broad international forum on the Korean Peninsula which would include the two Koreas, the UN Permanent Five, and some UN agencies such as the IAEA.17 Nonetheless, the United States had little interest in widening the negotiations as Russia was then perceived as marginal. When the second nuclear crisis erupted on the Korean Peninsula in 2002, the prospect of an American strike on the North tormented the Russians. U.S. Defense Secretary Donald Rumsfeld, on December 22, 2002, declared that the United States could fight on two fronts, and could overcome North Korea as well as Iraq; Rumsfeld’s words were, “We are capable of winning decisively in one and swiftly defeating in case of the other.”18 Deputy Foreign Minister Alexander Losyukov stressed that the situation in North Korea could not be resolved by force but only by negotiation, and that Rumsfeld’s threats were of concern to the international community.19 Second Deputy Foreign Minister Alexander Yakovenko with some trepidation stated that the situation was threatening for Russia as it faced the prospect of instability in “close proximity to our borders.”20 Critical Russian commentaries noted that Kim Jong Il was indulging in nuclear blackmail by removing the IAEA inspectors; his strategy was to challenge the Americans to open a second front when they were ready to lunge at Iraq.21 Deputy chair of the Federal Duma’s Committee on International Affairs Oleg Naumov thought that the North was a “totalitarian regime,” and very unpredictable, and that it had exacerbated military tensions on the Korean Peninsula. This kind of regime, said Naumov, only recognizes the language of force and power.22 In January 2003, the Russian foreign ministry moved to head off the minatory situation that had then arisen and devised a package plan for the revival of negotiations, which Igor Ivanov later discussed with the United States, France, China, and Korea. Its features included the maintenance of the nonnuclear status of the Korean Peninsula, the strict observance of the 1994 Agreed Framework, constructive dialogue on all sides, and a

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guarantee of the North’s security, together with the renewal of humanitarian and economic aid to the North. The difficulty for Russia was that it was in no position to act directly in this situation, as the United States was the main actor. Russia could propose solutions and hope to influence both parties to cooperate in the search for a resolution, but that demanded a role in multilateral negotiations where its voice could be heard. One proposal was that Russia could initiate the demilitarization of the North by coordinating policy with the South.23 This required, however, the cooperation of the United States without which the effort would be meaningless. Russia declared its opposition to any effort to involve the UN Security Council and resisted the imposition of sanctions on the North.24 The Russian position was based on a sense of optimism that the North would dismantle its nuclear program if given humanitarian assistance. The North’s resort to blackmail was regarded as a response to the Bush administration’s termination of deliveries of heavy oil, which were required under the Agreed Framework. Director-general of the IAEA Mohamed ElBaradei visited Moscow in January 2003 and discussed the above proposal with Igor Ivanov.25 Deputy Minister Losyukov visited Pyongyang to interest the North in this proposal and to promote the proposal for a nuclear-free zone on the Korean Peninsula. Russia, however, was excluded from the Three-Party Talks that were held in Beijing in April 2003 during which the United States demanded that the North dismantle its nuclear program before any benefits could be extended to it. Russians claimed that their exclusion from the negotiation process would delay a resolution of the issue, and that their participation was required as Russia had its own levers of influence over the North.26 The Three-Party Talks were subsequently expanded into Six-Party Talks to include both Russia and Japan, and were first conducted in Beijing in August 2003. Russia was included at the insistence of the North because it could balance the presence of the United States, which was a fitting reward for Putin’s efforts to establish a working relationship with Kim Jong Il.27 China also sought the inclusion of Russia to create a more balanced format for negotiations. Though the Americans initially resisted Russia’s inclusion, which they thought would entail additional pressure upon them to compromise with the North, they came to accept the expansion into the Six-Party Talks. As Assistant Secretary of State James Kelly later noted, the Six-Party format would deny the North the opportunity to play one party against another.28 Nonetheless, the Russian foreign ministry continued to hope that the Six-Party Talks could be expanded or transformed into a multilateral regional grouping. Coordination between China and Russia over the Korean Peninsula became evident when Hu Jintao visited Moscow on May 27, 2003, his first visit abroad since he became head of state in China. Both Putin and Hu sought to move negotiations with the North away from the Bush administration’s insistence on CVID and toward

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engagement. They stressed the need for a “multipolar world” and that the use of force to resolve the Korean issue was “unacceptable.” They called for the denuclearization of the Korean Peninsula and a return to the NPT in the context of a security guarantee for the North and the “creation of favorable conditions for its economic and social development.”29 Whether the dismantling of the nuclear program would follow the incentives or would be synchronized with them was not clear at this stage. During the Six-Party Talks which were held over August 27–29, 2003, the Russian and Chinese delegations consulted regularly and coordinated their views. Head of the Russian delegation Deputy Foreign Minister Alexander Losyukov emphasized that Russia was particularly concerned about the nuclear issue and that the removal of the nuclear weapons program was top priority. He explained that Russia had proposed additional security guarantees for the peninsula but lamented the North’s lack of interest.30 Optimistic views of the negotiations were expressed by Roland Timerbaev, who was Russia’s permanent representative to the IAEA. According to Timerbaev, Russia had good relations with all participants in the Six-Party Talks and could assume a “decisive role” in the resolution of the nuclear issue. He believed that the North would eventually evolve and reform like China, and that Russia could press the North to create a more open society.31 A more pessimistic interpretation of events was provided by a “foreign ministry informant” who admitted that Moscow had little influence over the North despite Putin’s effort to establish good relations with Kim Jong Il. According to this view any negotiated solution to the nuclear issue would result in the North’s collapse, and there could be no transformation of the North that would retain the present government structure and the present elite in power. Nonetheless, some benefits for Russia were seen in the relationship with the North that could help with the development of the Far East and might balance “Chinese expansionism.”32 It was difficult to assess the extent to which this negative view permeated the foreign ministry, but it reflected widespread skepticism among Russians in regard to the North. The first round of Six-Party Talks failed to make progress, as the Americans insisted that the North dismantle its nuclear program first before benefits would be provided. This deadlock between the North, which continued to accuse the United States of hostility, and the United States, which insisted that the North take the first step, was repeated in the second round, which was held in February 2004, and the third round in June 2004. During the third round, the Russian delegation proposed turning the Korean Peninsula into a nuclear-free zone but this was ignored by both the United States and the North.33 The fourth round was scheduled for September but the North refused to send a delegation and the talks were postponed indefinitely. Over January 2005 Northern representatives intimated that they had already developed nuclear weapons and on February 10, 2005,

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Pyongyang made a public declaration to this effect. The North’s declaration was no doubt an attempt to press the United States toward a more accommodating position but it placed Russia in a very difficult situation. Russians who supported Moscow’s engagement policy were exasperated by the Bush administration, they accused it of, first, provoking the nuclear crisis by repudiating the 1994 Agreed Framework, and then pushing the North to develop nuclear weapons by refusing to meet the North’s legitimate concerns. They were frustrated by the American refusal to offer economic aid and normalized relations with the North, which could have influenced the battle between hard-liners and reformers in the North to bring about a resolution of the nuclear issue.34 These supporters thought that if Russia faced a more perilous situation on the Korean Peninsula it was because of American “rigidity” and that the North’s actions were justified in view of the threat from the Bush administration.35 Despite this barely concealed annoyance, Moscow had little ability to influence the Americans in their contest of wills with the North and had to live with the outcome. The only available path for Russia in a situation where the main protagonists were beyond its influence was to press for the revival of the Six-Party Talks, and hope that a satisfactory resolution of the issue could be negotiated there. In commenting on the North’s declaration, Foreign Minister Sergei Lavrov reiterated that Russia sought a nonnuclear Korean Peninsula and expressed the hope that a resolution could be found based on the NPT and the legal economic and security interests of the North.36 Nonetheless, a resolution much depended on the intentions of the North. If Foreign Minister Paek Nam Sun represented the North when he said that they were ready to surrender their nuclear weapons, a resolution in the manner outlined by Lavrov would be possible. If the North’s position was more accurately represented by Deputy Foreign Minister Kim Gye Gwan, who said that nuclear weapons were necessary to defend the country against the United States, then a resolution would be most unlikely.37 The revival of the Six-Party Talks was crucial for Russia but it lacked the ability to act on the situation. Russians lamented the fact that moves to restart the talks took place “far from Moscow” and that despite Russia’s role in the negotiations, U.S. Secretary of State Condoleezza Rice did not bother to visit Moscow.38 During her visit to Beijing, Rice obtained Chinese agreement to apply pressure on the North to rejoin the negotiations. Agreement was reached on June 9 for the convening of the talks on June 25. The Russians noted rather unenthusiastically that the Americans had no intention of altering their previous position and that Rice continued to insist on the dismantling of the nuclear program. Because this same position had resulted in the failure of the third round of Six-Party Talks in June 2004, the chance of success this time would be even lower, as the United States and Japan had assumed an even tougher posture toward the North.39

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Nonetheless, Russians noted some positive changes as the language used by the Americans toward the North was more polite than before, moreover, U.S. delegate Christopher Hill declared on the first day of the talks that the United States regarded the North as a sovereign state and had no intention of invading it.40 Deputy head of the Russian delegation to the talks Alexander Alekseeva stated that it would be “excessively optimistic” to expect a breakthrough in the negotiations under those circumstances. Russia, he said, was to propose a staged approach to the issue and would contribute by extending energy support to the North.41 Russia’s contribution to the resolution of the issue was to create a positive atmosphere amongst the parties and to mitigate the negative effects of U.S.-North Korean antagonism, and also to offer energy to the North as an incentive for accepting an agreement. On September 19, 2005, an agreement was reached in the context of the Six-Party Talks, largely as a result of Chinese mediation and pressure upon the North. According to the agreement the North would “abandon” all nuclear weapons and existing nuclear programs and would return to the NPT and to IAEA safeguards at an early date. The other parties would respect the North’s right to the peaceful use of nuclear energy and would discuss the provision of light-water reactors (LWRs) “at an appropriate time.”42 Despite the claims that Moscow’s position between the North and South ensured it a privileged role in the Six-Party Talks, Russians had to accept that China had assumed the role as mediator between the United States and the North. Sergei Lavrov’s response to the agreement which he had helped negotiate was restrained, reflecting, as he said, the “difficult compromises” that were required to achieve it.43 Russian commentators described the agreement as a “vague formula” which both sides could interpret their own way. Above all, the issues surrounding the provision of the LWRs had not been clarified; exactly when would they be delivered and who would bear the cost, as each reactor came with a price tag of $2 billion.44 Others thought that Pyongyang had won the “battle of nerves” with the United States and extracted the right to develop peaceful nuclear energy, which the Americans had previously opposed. Moreover, the United States was obliged to “soften” its position over the issue and to declare that it had no intention of attacking the North. The agreement was also regarded as a “positive example” for the resolution of other nuclear disputes including that with Iran.45 It was thought that China had strengthened its international authority by mediating the agreement while South Korea’s president Roh Moo Hyun hailed the agreement as “epochal,” one that would open the path for a final resolution of the nuclear problem.46 One day later, on September 20, the North repudiated the agreement, declaring that it would not dismantle its nuclear program, nor would it return to the NPT unless it was provided with LWRs first.47 There were various explanations for the North’s volte face; one was that the hardliners

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had gained the upper hand in the continuing battle with the reformers in the North Korean decision-making system. Another and probably more credible explanation was that Kim Jong Il had deliberately disavowed the agreement to demonstrate his freedom of action from the Chinese who had pressed him into it, particularly as the North was preparing for its first nuclear tests. The euphoria provoked by the agreement was short-lived and the North then insisted that the United States lift the financial sanctions imposed on Banco Delta Asia in Macau for alleged money laundering and dealing in counterfeit money. Russian anxiety was kindled with the prospect of renewed tensions on the Korean Peninsula and it was reported in the Russian press that Putin would visit Pyongyang after the APEC Summit in the South in November to bring the North back into dialogue with the United States. As chair of the Duma Committee on International Affairs Konstantin Kosachev noted, it was important not to isolate the North any further.48 Putin did not visit the North as expected, probably in recognition of the limitations of Russian influence as the North was preparing for its BM and nuclear tests.

THE NORTH’S BM AND NUCLEAR TEST The North’s BM and nuclear tests revealed the extent of Russia’s vulnerability in a situation it could do little to influence. It had joined with China to deflect American demands on the North and to involve the United States in negotiations to the point where it would accept engagement as a natural outcome. Despite the hopes vested in the engagement policy and the September 2005 agreement, the North was not deflected from its course of developing its BM and nuclear weapons capability. Six BMs were launched on July 5, 2006; the first, fourth, and fifth were Scuds, the second and sixth were Nodongs, and the third was the Taepodong-2 which exploded and dropped into the sea some 250 kilometers from Vladivostok One BM fell close to Nakhodka, and two BMs fell in Russia’s exclusive economic zone in the Sea of Japan; the Russians noted that the North had no system for the automatic destruction of missiles that go off course, which was a standard safeguard; commentaries noted that the North’s BMs were built with unreliable technology and were very dangerous for Russia’s Far East.49 Russia, it was admitted, had no effective ABM system in the Far East as a threat from North Korea was not expected. The Taepodong-2 veered off course toward Vladivostok, and what saved the city according to one commentary, was the “poor quality” of the North’s missile technology.50 The North’s nuclear test on October 9 was similarly disturbing for Russia as it demonstrated its inability to prevent the nuclearization of the Korean Peninsula despite its efforts. First deputy chair of the federal Duma’s Committee on Security Mikhail Grishankov declared that the North’s nuclear

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tests could be a threat and that Russia did not need another nuclear power along its borders.51 Russia was indeed distressed by what was described as the “perfidy” of Kim Jong Il, and demanded that the North return to the NPT and the Six-Party negotiations.52 Russians could at least take comfort in the fact that they were informed of the test two hours beforehand, perhaps because the test was conducted some 130–150 kilometers from the Russian border station of Khasan, while China was given only twenty minutes’ warning.53 Russian commentaries claimed that the nuclear test was a product of the Bush administration’s policies, that in dealing with North Korea, the “whip has been overdone.”54 The Russian foreign ministry’s reaction was controlled, reflecting the agonizing dilemma that it faced in dealing with the North. It called upon the North to return to the NPT and urged the early recommencement of the Six-Party Talks but it was apparent that a return to the status quo ante was unlikely. Sergei Lavrov gave expression to this sense of apprehension when he stated that Russia should not recognize the North as a nuclear power, and that it had to continue working to prevent this outcome.55 This sense of anxiety in relation to the North’s nuclear program did not significantly alter Russia’s attitude in the UN Security Council when it joined with China to dilute the American demand for military sanctions against the North under Chapter 7. Resolution 1718 of October 14, 2006, prohibited a range of arms and nuclear-related goods from entering or leaving the North but the enforcement was to be in “accordance with national laws.”56 Lavrov displayed his reluctance for sanctions when he was later asked whether Russia would stop and check vessels traveling to the North in accordance with the resolution.57 Later, the Russian press revealed that Russia and the United States had struck a deal over the resolution in that the Americans would ease the pressure on Russia to remove their forces from bases in Georgia, and would desist from seeking military sanctions on the North if Russia complied with a modified Security Council resolution.58 Lavrov sought a solution not in sanctions but in the early restarting of the Six-Party Talks, which would allow the North to negotiate the future of the nuclear program. A combination of Chinese mediation and the influence of the state department under Condoleezza Rice made possible the Berlin talks of January 2007, when the United States agreed to lift financial sanctions on Banco Delta Asia in Macau. The result of these talks was the resumption of the third session of the fifth round of the Six-Party Talks on February 8, 2007; on February 13, the United States and the North came to an agreement according to which the Bush administration dropped its insistence upon CVID and accepted staged engagement, which Russia and China had been advocating. No doubt, the Bush administration felt overextended and vulnerable in the face of mounting domestic criticism over its occupation of Iraq and had decided to avoid a prolonged battle with its opponents over the Korean Peninsula. The agreement basically

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committed the North to freeze the five MW nuclear reactors in Yongbyon and to accept verification by IAEA inspectors; the other parties agreed to provide the North with food and fuel aid. Within sixty days working groups would be formed to discuss such issues as the denuclearization of the Korean Peninsula and the normalization of relations between North Korea and the United States, as well as Japan. The North was to provide a complete list of all nuclear programs and to declare their disablement in return for economic, energy, and humanitarian assistance.59 The agreement was hailed internationally as a welcome step that defused tensions on the Korean Peninsula but it said nothing about the North’s existing stock of plutonium, or when the Yongbyon plant would be closed. The issue of the denuclearization of the Korean Peninsula was consigned to a working group which simply postponed the most critical issue. At best, the North would surrender the Yongbyon facility and accept international inspections while preserving its plutonium stock for future purposes, should it feel threatened once again. At worst, the agreement would simply confirm the status quo and leave the North in possession of its nuclear program while receiving economic assistance and humanitarian aid. The Russian Foreign Ministry similarly praised the February 2007 agreement, as it signified that the Bush administration had forgone the military option in dealing with the North. Lavrov extolled the agreement for ending uncertainty in the Korean Peninsula and betokening a possible compromise agreement between the United States and the North which would unblock the negotiation process.60 Deputy Foreign Minister Alexander Yakovenko declared that the agreement added momentum to the effort to secure the nonnuclear status of the Korean Peninsula, and created the conditions for strengthening peace and security in Northeast Asia.61 It was announced that Alexander Losyukov would head the working groups on security in Northeast Asia and that China would chair the working group on the denuclearization of the Korean Peninsula.62 Mikhail Margelov, of the Upper House’s Committee on International Affairs, thought that the agreement was a “victory for diplomacy,” and an “important precedent for resolving nuclear problems, and an alternative to military interference.”63 Outside of government, the reactions were less charitable: The academic Vasilii Mikheev thought that the agreement was a “victory for the North” since the status quo would simply continue without any need for change in the North; Alexander Khramchikhin agreed and noted that the North’s survival depended upon its nuclear program and it was unlikely to surrender it; Korean specialist Alexander Zhebin noted the possibility of reversal as neither side might actually observe the agreement.64 Other commentaries were scathing and complained that the agreement was the North’s “dirty trick” since the reactor could be shut down and economic and humanitarian aid extended to the North but it could easily restart its nuclear program

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once again, as it has done in the past.65 The excruciating fear that engagement may have encouraged the North to ignore the NPT and to cling to its nuclear weapons program continues to trouble the Russians.

ENGAGEMENT AND THE FUTURE For Russia, the first and most immediate objective of engagement was to prevent the Bush administration from provoking conflict over the Korean Peninsula in its zealous attempts to enforce its nuclear nonproliferation policy. In this effort collaboration with China was critical to forge a common position against the United States, and though there were concerns that China had taken the lead over the engagement of the North, there was also the recognition that Russia benefited accordingly. Russian and Chinese alarm over the prospect of an American military strike on the North gave birth to the engagement policy in which case diplomatic exigency rather than clearly focused objectives shaped its unfoldment and development. This meant that the key features of the engagement policy were left undefined. At times, engagement was understood as offering incentives up front to the North after which the nuclear program would be dismantled. On other occasions, particularly as negotiations drew near, it was formulated in terms of the staging of incentives together with the step-by-step dismantling of the nuclear problem. The urgent need to deflect American pressure for the military option resulted in a simplified version of engagement which assumed that if that threat from the Bush administration was removed, the North would respond to the economic and security incentives, and that the resolution of the nuclear problem would follow naturally. Once the United States swung behind the February 13 Agreement the urgency disappeared, and the parties hurriedly arranged a staged version of engagement, which was implemented in piecemeal fashion. The North refused to implement the February agreement because America had frozen its bank account with Banco Delta Asia in Macau according to financial sanctions imposed in 2005. This barrier was removed with Russia’s cooperation. On June 14, 2007, the North accepted the return of IAEA inspectors and on June 25, the Americans agreed to release the $25 million from Banco Delta Asia and to remit the funds via the Russian Central Bank to the North’s account with Russia’s Dalkombank. On July 14, the North declared that Yongbyon nuclear reactor would be closed. The Six-Party Talks met again on October 3 and set a deadline at the end of December for the North’s full disclosure of its nuclear program, which it missed. On May 9 2008, however, the North eventually provided some eighteen thousand pages of documents relating to its nuclear program, which did not include the HEU program or material concerning proliferation to third parties. The North initially revealed a willingness to cooperate

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though it has taken time, effort, and considerable patience on the part of the other parties. Since then engagement has stalled and the Russian concern remains that tolerance of a residual or clandestine nuclear weapons capability in the North may be an unwelcome price to revive it. Should engagement be eventually successful, other issues might arise relating to the North and the future of the Korean Peninsula that would similarly require the involvement of external powers. For them, the Six-Party Talks would provide a useful forum if placed on a permanent footing. This development would facilitate the long-term objective of Russia’s engagement policy, one frequently expressed by Russian commentators, which is to stake a claim on the Korean Peninsula, and to avoid being pushed out by the United States, Japan, or even China. It would also allow Russia to prepare for Korean reunification as a distant aim in a way that would strengthen its influence in the Asia Pacific region.

NOTES 1. “U.S. Considers Security Deal with North Korea,” The Japan Times, January 20, 2003. 2. Alexander Vorontsov, “Current Russia-North Korea Relations: Challenges and Achievements,” Working Paper Series (Washington, DC: The Brookings Institution, Center for Northeast Asian Policy Studies, February 2007). 3. Ibid. 4. Georgii Toloraya, “Severnaya Koreya: novy etap otnoshenii ili ‘povtorenie proidennogo” (Moscow: Centre for the Study of Contemporary Korea, Far Eastern Institute, December 9, 2004). http://world.lib.ru/k/kim_o_i/a9620.shtml. 5. Yurii Golotyuk, “Koreiskim raketchikam poverili na slovo,” Izvestiya, February 17, 2000. 6. Toloraya, “Severnaya Koreya.” 7. “Kontseptsiya vneshnei politiki rossiiskoi federatsii,” Nezavisimaya Gazeta, July 11, 2000. 8. Gennadii Charodeev, Maksim Yusin, “Putin letit v Pkhen’yan,” Izvestiya, June 10, 2000; Don Kirk, “Putin is Acclaimed on Pyongyang Visit: After Decades of Sullen Isolation, North Korea Emerges as a Key Player,” International Herald Tribune, July 20, 2000. 9. Dmitrii Gornostaev, “Pkhen’yan likuet: Priyekhal Putin,” Nezavisimaya Gazeta, July 20, 2000. 10. Dmitrii Gornostaev, “Kogda Kim Chen Ir shutil?” Nezavisimaya Gazeta, August 15, 2000. 11. Viktoriya Sokolova, “Drugaya polovina Korei,” Izvestiya, February 28, 2001. 12. Park Song-wu, “NK, Russia Agree to Modernize Railroad Link,” The Korea Times, November 10, 2004; Maria Shimanskaya, “Russia, 2 Koreas Ready to Link Railways,” Vladivostok News, March 21, 2006. http://vn.vladnews.ru/Arch/2006/ ISS-510/News/upd21_2.HTM.

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2001. 15. Andrei Fedorov, “KNDR-na starte protsessa peremen,” Nezavisimaya Gazeta, August 22, 2002. 16. Georgii Bulychev, Aleksandr Vorontsov, “Severokoreiskii pas’yans,” Nezavisimaya Gazeta, August 26, 2002. 17. Alexander Vorontsov, “Current Russia-North Korea Relations.” 18. “Rumsfeld to N. Korea: US Could Fight on Two Fronts,” Reuters, December 22, 2002, in Global Policy Forum. http://www.globalpolicy.org/security/issues/iraq/ attack/2002/1222fronts.htm. 19. Ivan Yesin, “KNDR gotova unichtozhit’ ves’ mir,” Utro.ru, December 24, 2002. http://www.utro.ru/articles/20021224183334118508.shtml. 20. “Rossiya gotova nomoch’ snyat’ napryazhennost’ vokryg severokoreanskoi problemy,” Radio Mayak, December 26, 2002. http://old.radimayak.rfn.ru.archive/tex t?stream=interview&item=17316. 21. Ol’ga Vlasova, “Yadernyi shantazh Kim Chen Ira,” Ekspert.Online, December 20, 2002. www.expert.ru.printissues/expert/2002/02/20ex-korea. 22. “Rossiya gotova nomoch’ snyat’ napryazhennost.’ ” 23. Ol’ga Vlasova, “yadernyi shantazh Kim Chen Ira.” 24. Andrei Napkin, “Rossiya pomirut SshA ì KNDR,” Utro.ru, January 12, 2003. www.utro.ru/articles/20030112170036121359.shtml. 25. “Rossiya nadeetsya na mirnoe uregulirovaniie demarsha Pkhen’yana,” Radio Mayak, January 15, 2003. http://old.radimayak.rfn.ru.archive/text?stream=int erview&item=17715. 26. “Severokoreiskaya problema: na kompromiss pridetsya idti vsem, schitaet ekspert,” Radio Mayak, April 25, 2003. http://old.radimayak.rfn.ru.archive/text?strea m=interview&item=20386. 27. Alexander Vorontsov, “Current Russia-North Korea Relations.” 28. James Kelly, “Ensuring a Korean Peninsula Free of Nuclear Weapons,” Remarks to a Research Conference-North Korea: Towards a New International Engagement Framework (Washington, DC: U.S. Department of State, February 13, 2004). 29. Mikhail Petrov, “Sotrudnichestvo-priortetny kyrs RF ì KNR,” Itar-Tass, May 27, 2003. 30. “V Pekine nachalis’ rossiiskie-kitaiskie konsul’tatsii po KNDP,” Itar-Tass, August 25, 2003. http://www.itar-tass.com/different/hotnews/Russian/406797.html. 31. “Tseli ì zadachi storon na peregovorakh po yadernoi programme KNDR v Pekine,” Radio Mayak, August 27, 2003. http://old.radimayak.rfn.ru.archive/text?s tream=interview&item=17316. 32. Pavel Sheremet, “Chto zaslonyaet ‘solnechnyi svet,’ ” Ekspert.Online, September 15, 2003. www.expert.ru/printissues/expert/2003/34/34ex-korea2print. 33. Andrei Terekhov, “Amerikantsy privezli v Pekin rubashki,” Nezavisimaya Gazeta, July 26, 2005. 34. Anatolii Utkin, “Yadernaya Severnaya Koreya,” Novaya Politika, February 25, 2005. http://www.novopol.ru/article1723.html. 35. “Severnaya Koreya ‘pokazala zuby’ Bushu,’ Pravda, February 10, 2005.

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36. “Stenogramma Sovmestnoi Press Konferentsii” (Moscow: Ministerstvo Inostrannykh Del Rossiiskoi Federatsii, Department Informatsii I Pechati, No. 285, February 11, 2005). 37. Ol’ga Il’inskaya, “Severnaya Koreya: ‘da, u nas est’ yadernoe oruzhie,” Utro.ru, February 10, 2005. http://www.utro.ru/articles/print/2005/02/10/406398. shtml. 38. Artur Blinov, “Rais ì risovaya diplomatiya,” Nezavisimaya Gazeta, July 13, 2005. 39. Artur Blinov, “Kim Chen Ir dal soglasie na peregovory,” Nezavisimaya Gazeta, July 20, 2005. 40. Andrei Terekhov, “Severnuyu Koreyu nazvali suverennoi,” Nezavisimaya Gazeta, July 27, 2005. 41. Andrei Terekhov, “Amerikantsy privezli v Pekin rubashki,” Nezavisimaya Gazeta, July 26, 2005. 42. “Joint Statement of the Fourth Round of the Six-Party Talks,” U.S. Department of State (Washington, DC: U.S. Department of State, September 19, 2006). http://usinfo.state.gov/utils/printpage.html. 43. “Stenogramma otvetov na voprosy Ministra Inostrannykh del Rossii S. V. Lavrova” (Moscow: Ministerstvo Inostrannykh Del Rossiiskoi Federatsii, Department Informatsii I Pechati), No. 1939, September 21, 2005. 44. Artur Blinov “Soglashenie Made in China,” Nezavisimaya Gazeta, September 26, 2005. 45. Artur Blinov, “Koreiskii variant vse zhe bez’yadernyi,” Nezavisimaya Gazeta, September 20, 2005. 46. Oleg Kir’yanov, Rossiiskaya Gazeta, September 19, 2005. 47. See statement by North Korea’s Foreign Ministry, “The United States should not even dream of the issue of the DPRK’s dismantlement of its nuclear deterrent before providing light-water reactors, a physical guarantee for confidence building,” in Nikkei, September 20, 2005. 48. Yuliya Petrovskaya, “Putina zhdut u Kim Chen Ira,” Nezavisimaya Gazeta, October 21, 2005. 49. Artur Blinov, Vladimir Ivanov, Aleksander Babakin, Igor’ Verba, “Pod obstrelom dryzheskikh raket,” Nezavisimaya Gazeta, July 6, 2006. 50. “Koreiskaya raketa letala na Vladivostok,” Izvestiya, July 10, 2006. 51. “Yaderye ispytaniya KNDR mogut byt’ opasny dlya Rossii schitaet Grishankov,” Rossiskoe Agenstvo Mezhdunarodnoi Informatsii Novosti, October 9, 2006. http://en.rian/world/_community/20061009/54640215-print.html. 52. “Rossiya vozmutilo kovarstvo Kim Chen Ira,” Lenta.ru, January 18, 2007. http://lenta.ru/news/2006/10/09/mid/_Printed.htm. 53. Mariya Krivykh, ‘Kim skazal, Kim sdelal,” Ekspert.Online, October 9, 2006. www.exprt.ru/articles/2006/10/09/nuclear. 54. Dmitrii Kosyrev, “Yadernaya Severnaya Koreya: ne nado bylo pazmakhivat’ knutom,” Rossiskoe Agenstvo Mezhdunarodnoi Informatsii Novosti, October 9, 2006. http://rian.ru.world/asia/20061009/54647033-print.html. 55. “Lavrov: Priznanie KNDR yadernoi derzhavoi netselesoobrazno,” Polit.ru, October 21, 2006. http://www.polit.ru/news/2006/10/21/kndr.mtml.

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56. For text of resolution 1718 see “Security Council Condemns Nuclear Test by Democratic People’s Republic of Korea,” United Nations Security Council, (SC/8853, 14 October 2006). http://www.un.org/News?press/docs/2006/sc8853.doc. html. 57. “Rossiya rasschityvaet na skoreishee vozobnovlenie peregovorov no severokoreiskoi yadernoi probleme-glava MID Lavrov,” Interfaks, November 7, 2006. http://www.interfax.ru/r/B/0/0.htmal?id_issue=11617223. 58. “Vzaimozachet. Rossiya ì SShA poshli na ustupki drug drugu po Gruzii ì KNDR,” GlobalRus.ru, March 3, 2007. http://www.global.ru/news/783210/. 59. “Text: The Agreement,” International Herald Tribune, February 13, 2007. 60. “Lavrov: Opyt peregovorov po KNDR mozhet byt’ polozen v Irane,” Rossiskoe Agenstvo Mezhdunarodnoi Informatsii Novosti, February 14, 2007. http://rian. ru.world/asia/20070214/60747240-print.html. 61. Valerii Agarkov, Aleksandra Urusova, “Moskva pozitvno otsenivaet itogi ocherdnogo raunda peregovorov KNDR-Yakovenko,” Itar-Tass, February 14, 2007. http://www.itar-tass.com/print.html?NewsID=11252591. 62. Russia Hails result of North Korea talks—chief delegate,” Novosti, Russia news and Information Agency, February 13, 2007. http://en.rian/ world/20070213/60663861-print.html. 63. Evgenniya Novinkov, “Mazut v obmen na bezopasnost,’ ” Ekspert.ru, February 13, 2007. 64. Ibid. 65. “Ot Severnoi Korei zhdut podvokha,” Ekspert.ru, No. 7, February 19, 2007. http://www.expert.ru/printissues/Ukraine/2007/news_podvoh_ot_svernoy_korei/.

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SIX

THE POLITICAL ECONOMY OF NORTH KOREA’S EXTERNAL ECONOMIC RELATIONS Stephan Haggard and Marcus Noland

Considerable uncertainty surrounds the state of the North Korean economy. Even international trade statistics are regarded by the North Korean regime as a state secret.1 Yet the debate on economic “engagement” rests in no small measure on understanding North Korea’s international trade, investment and, aid ties. Has North Korean been constrained by its international economic relations, including sanctions, since the onset of the nuclear crisis in 2002? Or has the availability of external resources permitted the North Korean regime to pursue its security objectives more easily than in the past? This chapter reports on our efforts to reconstruct North Korea’s foreign economic relations from 1990 through 2005, and 2006 where the data permit.2 During the 1990s, North Korea diversified its foreign economic relations, normalizing relations with most European countries and deepening its economic relations with South Korea following the inauguration of Kim Dae Jung in 1998. The direction of North Korea’s trade has changed quite dramatically since 2000. Economic relations with Japan dropped sharply and trade with China, South Korea, and the Middle East grew in relative importance. Yet when we focus on commercial transactions—excluding aid and other concessional arrangements—South Korea’s share of North Korea’s trade has remained surprisingly constant. China’s growing economic influence, by contrast, becomes even more apparent.

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We then report on our effort to reconstruct North Korea’s balance of payments.3 This exercise requires an estimate of the relative magnitude that unconventional activities play in North Korea’s external relations, including weapons exports, illicit drug trade, and counterfeiting. A variety of estimates of these activities exist, but none have been considered to fit within a simple balance of payments accounting framework. Taking into account these illicit transactions, the country has run current account deficits throughout the entire 1990–2005 period. Both North Korea’s overall trade and its current account deficits continued to grow steadily during the first half of the 2000s, despite the fact that the illicit share of that trade has almost certainly shrunk. This finding, and evidence of declining multilateral assistance, implies that North Korea has been forced to turn toward more commercial activities, including exporting and hosting foreign direct investment. One of our most striking findings is that observable capital inflows into North Korea are trending up, at least through 2005. These capital flows come mostly from two sources, China and South Korea. However, South Korean flows have a large official transfer component while capital flows from China appear to be increasingly on commercial terms. Our findings have important implications for debates about the logic of engagement and the efficacy of sanctions. First, the data underline an important point in the sanctions literature: that sanctions are not likely to be effective in the absence of coordination. Despite the onset of a highly charged political-military crisis and much closer scrutiny of North Korea’s illicit activities, the regime has been able to secure levels of external resources that equal or exceed those available to it at any point since the collapse of the Soviet Union. Indeed, one effect of the crisis has been greater reliance on South Korea, China, and a number of Middle Eastern countries, countries that are more inclined toward an engagement strategy and less inclined to use the sanctions instrument. Second, our findings underline the highly politicized nature of South Korea’s economic relations with North Korea. The relative weakness of purely commercial ties calls into question arguments for engagement that rest on its socializing effects. It is not clear how aid or heavily subsidized economic relationships have the effect of promoting reform in North Korea. Ironically, such arguments appear to be more germane with respect to China’s trade and investment with the Democratic People’s Republic of Korea (DPRK) than South Korea’s. Since official economic relationships are not subject to the check of commercial viability, they must be judged largely by the extent to which they succeed in providing inducements for North Korea to change its foreign policy behavior. Given the missile and nuclear tests in 2006, it is difficult to argue that either economic inducements or constraints had a strong influ-

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ence on the DPRK’s foreign policy behavior one way or the other up until that time. Our findings do suggest, however, that North Korea might be more constrained by its external economic relations in the future. As the economy becomes more open and commercialized, difficulties in exporting and conducting international financial transactions become more binding. This prospect would offer one explanation for the particular emphasis the North Korean government has placed on resolving the Banco Delta Asia issue and the more forthcoming posture it took toward the nuclear issue over the course of 2007.

RECONSTRUCTING THE BALANCE OF PAYMENTS North Korea’s observed licit merchandise trade since 1990 is displayed in Figure 6.1. These figures are derived not from North Korean data, but from the “mirror statistics” of its trade partners.4 The collapse of the Soviet Union is reflected in the decline of both exports and imports in 1991, but the decline continues thereafter, reaching a minimum during the period 1998–99 at less than 40 percent of 1990 values.5 From 2000, however, trade began to revive. As of 2005, both imports and exports were still below their 1990 values. But the onset of the nuclear crisis in 2002 has not precluded a robust growth of North Korea’s foreign economic ties. Exports have grown, but imports have grown more rapidly, implying both a widening current account deficit and offsetting capital inflows. million US$ 3000 commercial merchandise exports 2500 commercial merchandise imports 2000

1500

1000

500

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Figure 6.1 Observed Commercial Merchandise Trade

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Table 6.1 provides an overview of the changing direction of North Korea’s trade. In contrast to other papers that have reported such data, we correct both the South Korean and Chinese data to remove our estimates of noncommercial trade. Trade with several major Middle Eastern oil export-

Table 6.1 Partner Country Share of North Korean Commercial Trade Exports Partner

2001

2002

2003

2004

China Korea Japan Thailand Russia European Union MENA Other countries

19.3 20.1 26.1 2.8 0.5 10.4 4.1 16.7

25.4 25.3 22.0 4.2 0.3 7.5 4.0 11.2

34.8 25.5 15.3 4.5 0.2 5.7 4.6 9.3

41.5 18.3 11.6 6.4 0.5 4.3 7.6 9.9

Imports Partner

2001

2002

2003

2004

China Korea Japan Thailand Russia European Union MENA Other countries

28.4 3.7 14.5 6.2 3.7 9.4 7.1 27.0

23.3 4.3 7.9 10.1 4.5 13.6 9.3 26.9

28.1 6.6 5.0 11.2 6.3 15.5 10.1 17.2

32.3 4.2 4.2 11.2 9.7 12.1 13.4 12.9

Total Trade Partner

2001

2002

2003

2004

China Korea Japan Thailand Russia European Union MENA Other countries

25.4 9.2 18.4 5.0 2.6 9.7 6.1 23.6

24.1 12.4 13.4 7.8 2.9 11.3 7.3 20.9

30.7 13.8 9.0 8.6 4.0 11.7 8.0 14.2

36.0 9.8 7.1 9.3 6.0 9.0 11.1 11.7

Note: MENA = Middle East and Northern Africa Source: Korea Trade-Investment Promotion Agency, “North Korea’s Foreign North Korea’s Foreign Trade,” 2001, 2002, 2003, and 2004, www.kotra.or.kr; International Monetary Fund, Direction of Trade Statistics, CD-ROM, July 2007.

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ers is unreported, and constitutes a potential source of bias. But keeping this important caveat in mind, the main finding is the rising importance of China, now accounting for more than 30 percent of North Korea’s total merchandise trade. By contrast, Japanese trade has been strongly affected by a near-embargo of North Korea. Europe’s share also contracted following the onset of the nuclear crisis in 2002. These data, however, are based on reported, merchandise trade. North Korea derives additional revenues from unobserved transactions, which include arms sales that are not technically illegal as well as clearly illicit activities such as drug trafficking and counterfeiting. The shock of the collapse of the Soviet Union in the early 1990s and the subsequent collapse of the North Korean economy provided strong incentives for the regime to pursue these illicit activities. However, this trade received increasing scrutiny after the onset of the nuclear crisis in 2002 and became a target of the United States and multilateral action; here we provide a brief overview of these activities and our justification for the more modest estimates that we reach concerning their magnitude.6 Illicit Trade It may appear obvious that arms sales and illicit activities are nonrecorded activities and as such should simply be added to the balance of payments as exports, thus reducing the financing gap.7 However, this assumption is erroneous. It is also possible that illicit trade is misreported in other commodity categories and therefore does not represent a dollar-for-dollar addition to North Korea’s net exports. Missiles, for example, could be misreported as fabricated metal products, illicit drugs as medicine. The truth lies somewhere in between, but most analysts overstate their contribution (by assuming that they are entirely additional) than understate it (by making corrections for the likelihood that they are partly captured elsewhere in the trade data). With this important caveat, we can review briefly three possible sources of additional export earnings: weapons sales; drugs; and counterfeiting of both products and currency. In all three cases, the onset of the crisis of the early 2000s almost certainly put a crimp in North Korean sales. In the 1980s, North Korea emerged as a significant player in the global arms market, supplying conventional arms based on Soviet designs and including short-range ballistic missiles.8 According to the 1997 Arms Control and Disarmament Agency report, sales in the second half of the 1980s (1986–1990) averaged over $500 million a year (in constant 1996 dollars) or just under 20 percent of total exports for that period. In the first half of the 1990s, however, sales fell as a result of the collapse of the Soviet Union and its technological support, the emergence of new suppliers, and

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a reduction of tensions among key customers; the end of the Iran-Iraq war was almost certainly consequential in this regard. There is ample evidence that the North Koreans sought to revive missile sales in the mid-1990s, much to the consternation of both the Clinton and Bush administrations.9 Yet the onset of the nuclear crisis in 2002 and the missile and nuclear tests of 2006 served to bring this trade under much closer international scrutiny. Since 2003, several high-profile interdictions, the initiation of the Proliferation Security Initiative, and diplomatic efforts by the United States to restrict overflights by aircraft suspected of carrying North Korean weapons have further restricted such sales.10 In the wake of the missile and nuclear tests of 2006, the UN Security Council imposed sanctions on North Korea covering both export and import of a wide range of military products.11 Despite this heightened scrutiny, two caveats are worth noting. Although a number of North Korea’s customers have been peeled away, the interest of a small number of states in acquiring weapons has no doubt grown. Iran and Syria head this list, but recent press reports include transfers to Ethiopia. And second, due to the increased price of oil in recent years, some of North Korea’s historic customers are flush with cash; Iran, again, falls quite clearly in this category and, by extension their proxy Hezbollah, as well as some African countries such as Sudan. Nevertheless, from an overall balance of payments perspective, we suspect the role of arms sales in overall exports to be declining. Drugs constitute a second source of illicit income. Initially, drug exports appear to have been limited to trafficking in drugs secured elsewhere, but in the mid-1990s North Korea began to produce drugs for export as well. This effort began with the export of opium and heroin and later diversified into methamphetamines.12 Because the networks through which drugs are sold involve extraordinary markups as one moves down the distribution chain, estimates of the drug trade are easily inflated. For example, in the same Congressional testimony, Peter Prahar reported both the purchase of sixty kilos of amphetamines by Japanese crime syndicates for $1 million (or $17,000 a kilo) in 1998 and a Japanese seizure of 565 kilograms in 1999 with a street value of $347 million (or $615,000 a kilo)!13 Clearly, the former rather than the latter are closer to what we would consider export prices. The discrepancy between wholesale and retail prices helps explain the wide variation in estimates of this trade. David Asher, who coordinated the North Korean Working Group at the Department of State, has recently offered an estimate of $100–200 million a year.14 However, some simple calculations of estimated acreage under cultivation, likely output, and wholesale prices lead us to believe that this estimate is exaggerated.15 Moreover, these numbers have probably fallen in the 2000s.

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Chestnut provides the most systematic overview of public reports of drug seizures through 2006, which shows a dramatic increase in seizures beginning in the mid-1990s but a downward trend thereafter.16 The International Narcotics Control Strategy Report reports only two small courier incidents for 2004 and notes that no large Japanese seizures had occurred during the reporting period.17 Interestingly, the 2005 World Drug Report makes no mention whatsoever of North Korea in its detailed discussion of the international heroin and opium markets and in 2007, the State Department quietly dropped North Korea from its list of major drug producing countries. The decline in seizures could reflect alternative means for bringing drugs into major export markets, including China, Japan, Russia, and South Korea. However, the decline in seizures also reflects more effective surveillance and interdiction of North Korea’s activities. In 2004, the Chinese Ministry of Public Security publicly stated its concern with North Korean drug smuggling. In 2006, Japanese police successfully broke up the ring that was responsible for seven, high-profile seizures in that country in the late 1990s and early 2000s. Moreover, the North Korean regime itself has begun to show signs of concern over drug trafficking, either because of external pressure on the issue or more likely because of the penetration of drugs for domestic use.18 A second major form of illicit activity is counterfeiting. U.S. government officials had long suspected North Korea to be the origin of the so-called supernotes, very high-quality counterfeits of $100 bills, which began to appear in 1989.19 However, the issue gained more attention in 2005 with a series of criminal cases and U.S.Treasury enforcement actions against Banco Delta Asia (BDA) as a financial institution of “primary money laundering concern”;20 this action played a central role in the breakdown of the Six-Party Talks in late 2005 and their ultimate revival in early 2007.21 As with other illicit activities, estimating the value of counterfeit currency is difficult. U.S. government officials have estimated that $50 million of notes have been seized since 1990 and that the total amount of counterfeiting is very much larger than that, even in the hundreds of millions of dollars.22 However, the Ernst and Young audit of BDA conducted for the Macau monetary authorities in 2005 suggests that counterfeiting through BDA was almost certainly overstated and that the motive for targeting the bank was to restrict North Korea’s gold sales or simply to generate a political bargaining chip.23 Counterfeiting has not been limited to currency; evidence also exists of North Korean involvement in counterfeiting of cigarettes and pharmaceuticals.24 The U.S. tobacco industry puts potential gross revenues from counterfeiting on the order of $520 million to $720 million annually based on the prices of counterfeit cigarettes in Asian ports such as Pusan, Manila, and Kaohsiung.25 However, this estimate is also for the value of the cigarettes

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once they have been sold to criminal gangs and successfully been smuggled out of North Korea through China and thus grossly exaggerates North Korean export earnings from them. As can be seen, there is extraordinarily high variation in the valuation of these illicit sales. Many estimates make reference to prior periods, or peak levels of the given activity, and few make any adjustments at all for whether foreign exchange earnings from the activity are truly additional to the balance of payments or hidden in other exports. Above all, past estimates generally do not consider the likely effect of closer scrutiny of North Korea’s economic activity that has occurred since the onset of the crisis in October 2002 and particularly since the U.S. Treasury actions of 2005 and the introduction of formal sanctions in the wake of the missile and nuclear tests of 2006. Remittances and Services Transactions: New Forms of Commercialization As with other sources of financial support for the country, the magnitude of private remittances—particularly from the Korean community in Japan—has been the subject of substantial controversy.26 Yet as with illicit activities, a string of events have combined to reduce Japanese remittances quite dramatically by 2004–2006. These remittances were initially funneled through credit unions and firms affiliated with the Chosen Soren, a powerful organization of Korean residents in Japan with a decidedly pro-Pyongyang tilt. But a number of these financial institutions failed and were consolidated by the government in the wake of the financial crisis of 1998. As a result, remittances had to rely either on transfers through third parties, such as the Macau banks that were targeted by the United States after 2005, or on cash carried by travelers that was subject to a ¥1 million limit. By 2006, remittances had also been affected by Japan’s steady drift toward a virtual embargo of North Korea as a result of failure to resolve the abduction issue. Japan is not the only source of remittances, however. A variety of North Korean enterprises have entered the business of providing contract labor in logging and the construction sector in Vladivostok and the Russian Far East, and it is estimated that ten to fifteen thousand North Koreans are employed in this way.27 Moreover, North Korea has been replicating the model of organizing contract workers in a much wider array of countries, including Kuwait, Qatar, the United Arab Emirates, and China.28 In China, there are North Korean contract workers in the textile industry as well as a community of North Korean refugees that has been estimated as ranging from as few as twenty thousand to as many as four hundred thousand people.29 The amounts that they are transferring back to North Korea are surely small, and may well be declining as increased

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policing has discouraged cross-border transit. However there is an ethnic Korean population on the Chinese side of the border that makes private transfers to North Korea and is a conduit for money originating in Korean communities outside China. These non-refugee channels are almost surely more important in financial terms. In sum, although Japanese remittances have almost certainly declined over the last decade, it is probable that Russian and Chinese remittances have been rising in recent years. The model of exporting North Korean labor has quietly surfaced in a number of other countries as well, partly offsetting the loss in remittances from Japan. We expect that this trend of labor exports is likely to continue. A brief word should be said about tourism, because it figures quite prominently in the politics of North-South relations. The Mt. Kumgang Tourism Project has its origins in two agreements—one in October 1998, the second in August 2000 immediately following the summit of that year— between the Hyundai group and the North Korean government. These agreements called for Hyundai to make $942 million in payments to North Korea over a seventy-five-month period for exclusive rights to develop the Mt. Kumgang area as well as seven other projects, including the development of an industrial park which eventually became the Kaesong Industrial Complex. In the first nine months of the Mt. Kumgang Tourism Project, it netted $183 million in revenues for North Korea. But the flow slackened in accordance with the payments schedule and North Korean provocations led to suspensions and disruptions in the tours. Hyundai was subsequently unable to make the payment schedule specified in the original agreement, and in 2001 the contract was renegotiated, effectively cutting Hyundai’s obligation in half. The South Korean government, in the form of the Korea Tourism Organization, assumed a greater role in the operations by effectively providing a subsidy. Today, North Korea receives $72 million annually in rent for Mt. Kumgang, plus an additional fee per visitor that has been running between $9 and $14 million a year. These admissions fees have fallen recently as the destination has lost its luster; North Korean belligerency has soured potential tourists. The Mt. Kumgang Tourism Project exhibits a number of hallmarks of the noncommercial nature of South Korea’s economic relations with the North. Despite the pretense that this project was commercial in nature, it was closely intertwined with political objectives from the start. It is highly doubtful that the project has had any commercializing effect; to the contrary. It is also worth nothing that the South Korean government did not interrupt this flow following the missile and nuclear tests, despite strong domestic and international pressure to do so; the only change in policy was the elimination of the subsidy to the project, which had already fallen to very low levels.

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Deconstructing the Capital Account North Korea has been effectively excluded from international capital markets since defaulting on bank loans in the late 1970s, the only communist country to do so. Its ability to borrow internationally is limited to a relatively low volume of short-term trade credits. The major sources of capital inflow appear to be aid and other official transfers. However, when we reconstruct the balance of payments we will show that inflows of FDI have almost certainly become a more important component of the overall balance of payments picture. Aid seeking was an important component of North Korea’s response to the famine and more general economic crisis of the mid-1990s.30 The overwhelming majority of aid, reported in Table 6.2 by donor, has been in the form of in-kind transfers of food and other humanitarian items. However Table 6.2 Total Humanitarian Assistance, by Donor Organization (million USD) Year

1996/7 1997/8 1998 1999 2000 2001 2002 2003 2004 2005(b) TOTAL

Within appeal

Outside appeal

Multilateral (through UN)

Bilateral(c)

UN agencies

34.4 158.4 215.9 189.9 153.1 248.0 220.0(a) 133.1 151.5 0.0 1,504.2

11.3 105.8 92.1 41.6 58.6 61.2 79.2 9.6 121.4 61.1 641.9

0.0 1.8 0.0 0.0 0.1 1.5 3.0 1.6 2.2 0.7 10.9

Total

NGOs (including Red Cross) Other 4.7 26.5 27.2 4.3 12.5 66.8 58.6 42.3 24.8 1.8 269.4

0.0 0.0 0.0 0.0 0.0 0.2 0.0 0.0 0.6 0.0 0.8

50.4 292.5 335.1 235.9 224.2 377.6 360.8 186.7 300.5 63.6 2,427.2

Notes: (a) Includes $99.32 million carried over by the WFP. (b) There was no consolidation appeal in 2005. (c) Does not include China. Bilateral data includes WFP data not listed in the United Nations Office for the Coordination of Humanitarian Affairs (UN-OCHA). Some bilateral assistance does go through a United Nations organization or an NGO. Source: UN-OCHA, “Financial Tracking Service,” www.ocha.unog.ch/fts/index.aspx; World Food Program, “Resourcing Update: Summary Chart Detailing Confirmed Contributions Through the World Food Programme of the United Nations,” February 27, 2006, www.wfp.org/ appeals/flash_appeals/index.asp?section=3&sub_section=1#.

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significant these aid flows have been, they cannot be used to finance the trade deficit directly. However, we have documented elsewhere how commercial imports of food dropped as aid increased, allowing the government to conserve on foreign exchange previously spent on food; aid did in fact serve indirectly as balance of payments support.31 Despite claims that humanitarian aid should not be linked to politics, aid has become much more erratic since the onset of the nuclear crisis. Bilateral assistance from China and South Korea came to play a more prominent role, and other forms of assistance, including those provided through the Korea Energy Development Organization (KEDO),32 declined sharply. Assessing the magnitude of Chinese support is one of the most elusive parameters in attempting to reconstruct the overall balance of payments. It is sometimes argued that China simply allows North Korea to accumulate arrears on its trade account. But it is highly doubtful that the entire bilateral deficit represents aid; to the contrary, evidence from a wide array of sources—from press accounts to information on the commodity composition of trade—suggests that China-DPRK relations are becoming more rather than less commercial over time. Although hard data is scarce, there is evidence that the regime has made efforts to increase foreign direct investment and that it has had at least some success in doing so. The increase in FDI reflects in part policy changes taken in response to the growing external constraints we have highlighted in the previous sections, in part an adaptive response on the part of enterprises. The increase in foreign investment is also related to the changing geographic pattern of North Korea’s external economic relations visible in Table 6.1. Foreign direct investment from China and South Korea is a major driver of the changing patterns of trade. In the case of South Korea, this investment includes, but is not confined to, the Kaesong Industrial Complex. With respect to China, it includes a wider range of investments that range from small-scale informal investments up to large projects in sectors such as mining that involve major state-owned enterprises. We have only one international series on foreign direct investment, provided by UNCTAD’s annual World Development Report; those figures are reported in Table 6.3. Apart from a brief spike in the data associated with the push to expand the Rajin-Sonbong zone,33 they show that investment was low or negative for much of the period, as frustrated investors, primarily Japanese associated with the Chosen Soren and Russians, disinvested and withdrew. But according to this data, investment turned up sharply in 2003, led by investors from South Korea and China. Again, it is interesting to note that the onset of the second nuclear crisis did not deter such investment, at least through 2005; the 2002–05 period saw the most sustained inflows into the country since 1990.

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Table 6.3 Foreign Direct Investment in North Korea (million USD) Year

FDI

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

–61 134 2 8 –1 0 2 307 31 –15 5 7 0 158 197 113

Source: United Nations Conference on Trade and Development, World Investment Report, various issues, www.unctad.org/wir.

Table 6.4 summarizes noncommercial trade between the South and North. These transactions are dominated by direct support, which has mostly taken the form of food aid and provision of fertilizer. Although this support is officially financed by loans, there can be little doubt that it constitutes aid. Yet Mt. Kumgang and a new generation of cooperation projects negotiated since the onset of the nuclear crisis play a substantial role as well. It is worthwhile reviewing these projects in some detail, as they are representative of the highly politicized nature of North-South economic relations and some of the moral hazard problems that can arise as a result. These projects have their origin in largely private, commercial initiatives, particularly from Hyundai chairman Chung Ju Young. The first of these efforts to reach fruition was the Mt. Kumgang Tourism Project, which we have discussed above in connection with service earnings. In addition, an Agreement on Economic Cooperation between Hyundai and the Asia-Pacific Peace Committee signed in 2000 granted thirty-year exclusive rights in seven other major business areas: railroads, telecommunications, electric power, construction of the Tongcheon airfield, use of Mt. Kumgang reservoir water, development of other tourist sites (including Mt. Paekdu), and the construction of the Imjin River Dam. In connection with the 1998

17.8 4.0 14.4 35.6 33.7 58.6 23.7 0.5 0.4 0.0

Light water reactor (KEDO) 0.2 1.4 8.4 15.6 43.4 104.5 110.6 213.2 270.7 258.5 365.0 419.2

Support to North Korea 10.8 12.8 29.0 19.8 39.5 11.7 3.5 2.0 0.0 0.0 0.0 0.0

Heavy oil (KEDO)

Exports to North Korea

37.6 40.6 14.6 5.8 11.9 16.1 41.7 87.0 56.6

Mt. Kumgang project

1.2 6.3 17.2 10.4 11.7 4.8 48.5 163.7 238.7

Other cooperation projects 11.0 14.3 55.3 78.1 144.3 183.6 164.0 297.4 315.5 349.1 616.1 714.4

Total exports

Source: Korea International Trade Association, Inter-Korean Trade Statistics, 2006, http://global.kita.net.

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

(million USD)

Table 6.4 North-South Noncommercial Trade: South Korean Perspective

2.8 0.1 0.1 1.9 2.7 1.4 0.2 0.1 20.1 78.2

Total imports

0.0 4.8 0.1 0.1 1.0 1.6 0.5 0.1 0.0 3.2 9.9

Imports/ Total trade

Imports from North Korea

11.0 14.3 58.1 78.2 144.4 185.5 166.7 298.8 315.7 349.2 636.2 792.6

Total Trade

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and 2000 agreements, Hyundai had promised, and probably made, payments to North Korea of approximately $800 million through 2005. Much of the subsequent controversy surrounding the Mt. Kumgang Tourism Project centered on the revelation in March 2002 of a secret $500 million remittance from Hyundai, and the further revelation that most of the money was in cash, that it was commingled with government money (through a Korean Development Bank loan), that it appeared to constitute a direct payment for the 2000 summit and that some of it was even remitted with the cooperation of the South Korean national security apparatus. Hyundai claimed that these were legitimate business payments. However, the project was not viable and quickly came to involve more direct government involvement and subsidies; the indictment of chairman Chung Mong Hun that ended in his suicide was precisely over allegations that he had embezzled corporate funds in order to bribe public officials to support Hyundai’s North Korea business. In 2001, the Korea Tourism Organization borrowed 90 billion won from the North-South Cooperation Fund to invest in the project. The Roh government also provided subsidies to road building for the project in 2004, and other subsidies to the project were not finally terminated until the nuclear test of 2006. Yet direct public involvement in large-scale projects is not likely to diminish. The joint declaration following the 2007 summit outlined a wide-ranging agenda for future infrastructure cooperation that, along with the existing investments in road and rail links, is likely to involve substantial if not exclusive public funding.

ADDING IT ALL UP In the previous sections, we have provided an overview of North Korea’s external economic relations, considering each item in isolation. Yet a central weakness of this approach—most visible in various estimates of the country’s illicit activities—is that they are not constrained by the underlying identity in balance of payments accounting. In this section, we report on our efforts to “add it all up” by seeing what insights can be gained by placing these estimates together and meeting the crucial accounting condition that the capital account and the current account should—in theory at least—perfectly offset. We then consider the magnitude of the statistical discrepancies that inevitably result when dealing with a country that is as notoriously opaque as North Korea. Figure 6.2 displays data on total current account credits and debits inclusive of unconventional sources of revenue. We report three series on each side of the ledger. The first is our baseline, or “best guess,” that includes both observed trade, transfers, and service flows and our judgments about the likely magnitude of nonreported trade, including missiles and illicit transac-

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million US$ 4000 3000

current credits range current debits range current credits best guess current debits best guess

2000 1000 0 –1000 –2000 –3000 –4000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Figure 6.2 Total Current Account Credits and Debits

tions.34 We also provide both high and low estimates, which we generate by applying the extreme estimates in the literature that we have reviewed. Our estimate of North Korean credits on the current account, which includes exports, broadly follows the pattern visible in the official data reported in Figure 6.1 that is based on mirror statistics. Trade collapses in the early 1990s, bottoming out in 1998, before beginning a revival. Uncertainty about the magnitude of these revenues increases in the wake of the famine, due in our view to an intensification of nonconventional activities in the mid- to late 1990s. Nonetheless, our estimates begin to diverge more sharply from the high estimates during that period because of our belief that illicit activities face increasing constraints. Our best guess figure for 2005, $2.4 billion, is much closer to the lower bound than the upper bound estimate of $2.9 billion. The uncertainty surrounding debits on the current account, which is comprised mostly of imports, is considerably narrower in part because there is no precise equivalent of illicit imports (although North Korea may want to conceal some weapons-related imports and exports across the Chinese border that may not be perfectly captured by Chinese customs). Again, if we compare like estimates, imports on commercial terms in 2005 remained below their 1990 level although they are clearly rising. Adding in imports

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financed by South Korean aid actually pushes the total value of North Korean imports in 2005 past the previous peak in 1990. Figure 6.3 combines the estimates of the current account balance derived from our analysis of exports, imports, income, and current transfers; we return in a moment to the statistical discrepancy. The extreme bounds of the current account balance are calculated by combining the maximum (minimum) estimate of credits to the current account and services with the minimum (maximum) estimate of debits to the current account. Our best guess is that North Korea ran a current account deficit for the entire period, with the cumulative deficit summing to $4.5 billion (low and high estimates are a deficit of $8.2 billion and a surplus of $ 0.8 billion, respectively). The uncertainty about the size of the current account deficit has increased in recent years due to the increased uncertainty about export revenues just noted. Our best guess is that in 2005 North Korea ran a current account deficit of roughly $500 million—about the same as in 1990. A striking finding from this exercise is the continuing ability of North Korea to finance large current account deficits. Following the onset of the nuclear crisis in 2002, the current account deficit does narrow somewhat. However, it remains substantially larger than it was in the mid-1990s and even widens again in 2005. This increase in external financing reflects in part the increasingly generous provision of bilateral aid from South Korea despite a falloff in multilateral assistance as seen in Table 6.2. But the extensive press coverage of Chinese investments suggests strongly that FDI million US$ 400

200

0

–200

–400

–600

current account range

–800

current account best guess –1000 1990 1991

1992

1993 1994

1995

1996

1997

1998

1999

2000

2001

2002

Figure 6.3 North Korean Current Account Balance

2003

2004

2005

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is playing an increasing role in financing the North Korean current account deficit as well. In theory, the current account and capital account should sum to zero; any imbalance in transactions in goods and services is exactly offset by a corresponding financial flow. In the North Korean case, at times this discrepancy has been large (1990 at the onset of its financial crisis and in 1997 at the peak of the famine) and has taken both positive and negative values. The former implies that the country was consuming more resources than can be accounted for by the estimated transactions, that is, the magnitude of its current account deficit exceeds capital inflows as seen in Figure 6.4. So for example, in 1990, at the onset of its economic crisis when the baseline estimate of the statistical discrepancy reaches nearly $400 million, it is possible that North Korea was financing its imports through a reduction in official reserves, which we cannot observe and hence cannot properly record in its capital account transactions. For the period 1990–2005 the absolute value of the discrepancy over licit merchandise exports averaged 14 percent, reaching a minimum of 1.3 percent in 1993, and taking the value 2.2 percent in the terminal year of 2005. As points of comparison, the equivalent figures for South Korea, China, Japan, and the United States range from 1.0 percent (South Korea) to 2.2 percent (China). In most years the baseline estimate of the statistical discrepancy takes a negative value, implying that North Korea has unaccounted-for resources. Assuming that these estimates are correct, there are a variety of possible

million US$ 1000 800

range

600

best guess

400 200 0 –200 –400 –600 –800 –1000 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Figure 6.4 North Korea Balance of Payments Statistical Discrepancy

2005

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explanations, none mutually exclusive. The first explanation is that even our skeptical guesses about unconventional revenues may be generous, and the earnings generated by these activities are even less than our best guesses. A second explanation would be that imports are undercounted. It is possible that North Korea is importing weapons systems that go unreported, or that other items—for example, luxury goods—are not accounted for in existing statistics. A third possibility is that the authorities have been accumulating official reserves. Although this is difficult to believe for the famine period, it is certainly possible that the regime saw the resumption of trade and investment in the early 2000s as an opportunity to rebuild foreign exchange holdings. There could also be unaccounted-for capital outflows. We have assumed that North Korea is not engaged in any substantial FDI of its own, but there is certainly some, such as the establishment of trading companies engaged in labor contracting or North Korean–themed restaurants. More significantly, it is possible that at least the top circles of the North Korean elite have accumulated foreign assets. Some high-ranking North Korean officials maintain residences in foreign countries and educate their children abroad. The possibility of the proverbial Swiss bank account cannot be ruled out, although the controversy over a mere $24 million in BDA suggests that such overseas investments are not likely to close the statistical discrepancy.

THE DPRK’S ECONOMIC RELATIONS WITH CHINA AND SOUTH KOREA: HOW SIGNIFICANT? The analysis thus far has addressed aggregate trade and financial flows. A distinct issue of political as well as economic interest is the origin of these flows. To get a rough handle on this issue, we have calculated North Korea’s economic interaction in all forms—trade, aid, and investment—with South Korea and China and expressed these gross flows as a function of merchandise exports (Figure 6.5). These aggregates represent a way of scaling the overall level of economic interaction between North Korea and each of these two major trading partners; they should not be read to reflect net revenue flows. Nonetheless they are significant as an order of magnitude measure of the possible “socializing effects” associated with engagement with the two countries, as well as an indicator of possible political influence. As shown in Figure 6.5, North Korea’s interaction with both countries has risen considerably over the sample period. The increase in this measure is most dramatic for South Korea, rising from zero in 1990 to a peak in 2000 of 1.3. This period saw significant aid flows, including illicit payments, associated with the 2000 summit and the intensification of cooperation projects. The South Korean ratio has fallen off slightly in recent years as total interaction—the numerator in this expression—remained roughly constant.

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ratio 1.6 1.4

South Korea 1.2

China

1 0.8 0.6 0.4 0.2 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Figure 6.5 Ratio of Balance of Payments Transactions to Licit Merchandise Exports

The indicator for China rises fairly steadily throughout the sample period, from 0.4 in 1990 to 1.3 in 2005, slightly surpassing that of South Korea in this terminal year of our sample period. This combined, gross measure of economic interaction helps explain South Korean concerns about China’s “economic colonization” of the northern part of the peninsula. The big uncertainty with respect to China is how much of this interaction is on market-conforming terms and how much represents aid. We plan to explore this question in future work, but Figure 6.6 provides a first estimation of aid flows from the two countries. As we have already noted, estimates of Chinese aid that suggest that all trade is effectively concessional are almost certainly misleading. Yet even if we take the high estimate for Chinese support, it is clear that South Korean aid has substantially outstripped that from China; except for the extraordinary payments made in 2000, aid has actually trended up since the onset of the nuclear crisis in 2002.

CONCLUSION: LOGICS OF ENGAGEMENT Our findings can be summarized as follows: Through the first part of this decade, including through the onset of the nuclear crisis, North Korea’s trade has grown steadily. We suspect that the illicit share of that trade has shrunk as a result of direct interdiction activities, heightened scrutiny of all

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million US$ 700

range, China South Korea best guess, China

600 500 400 300 200 100 0 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Figure 6.6 South Korean and Chinese Official Support

transactions with North Korea, and, to a lesser extent, sanctions. But overall trade has continued to grow despite conflict over the nuclear question. While it is still the recipient of a considerable amount of concessional assistance, aid fatigue has clearly set in and North Korea has been forced to rely more on commercial activities. However, observable capital inflows into North Korea are trending up, at least through 2005. They mostly come from two sources, China and South Korea, with South Korea’s having the larger concessional component. The geographic pattern of the country’s trade has shifted quite dramatically, gravitating toward South Korea, China, and the Middle East. Two strategic implications follow from North Korea’s growing reliance on these two partners. First, while sanctions have no doubt hurt North Korea, they have also resulted in a reorientation of the North Korean economy toward trading and investment partners who are more favorably disposed toward a strategy of engagement. The reasons for this shift in North Korea’s foreign economic relations have partly to do with policy and economic developments in South Korea and China, partly with developments in other countries. U.S. trade and investment ties with North were always minimal, and after 2002 humanitarian assistance trended down as well. The capacity of the United States to impose sanctions would thus appear limited, but the

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actions against BDA taken in September 2005 proved surprisingly effective in deterring trade and investment from third countries and in complicating North Korea’s external financial transactions. North Korea showed a strong interest in resolving the BDA issue in early 2007, setting the stage for the February 13 Agreement at the Six-Party Talks that outlined a broad framework for denuclearization. Similarly, even before the missile and nuclear tests of 2006, Japan had drifted toward a de facto sanctions policy as well, and both trade and remittances had fallen sharply;35 these trends became even more pronounced in the second half of 2006 as Japan opted for a near-complete embargo in the wake of the missile and nuclear tests. Likewise, North Korean diplomacy placed great effort into establishing diplomatic, trade, and investment relations with Europe in the mid- to late 1990s, and with some success. But these relations stalled in the early 2000s even before the onset of the crisis in October 2002, and stagnated thereafter. The EU strongly backed sanctions against North Korea in the wake of the missile and nuclear tests in 2006, and instituted full inspections of cargo that were likely to put a further damper on trade and investment. On the basis of the limited information that we have as of late 2007, the last full year of the Roh administration, China appeared more willing to impose sanctions on North Korea in the wake of the nuclear test than South Korea. These sanctions did not take a blanket form, but rather have involved small, reversible steps such as placing restrictions on bank remittances. South Korea, by contrast, has taken one major sanctions step—the threat to terminate humanitarian assistance—that was altogether incredible from the outset, while allowing all other existing economic relationships to continue unaffected.36 The fact that this policy mix persisted despite both the missile and nuclear tests reflects a power political equilibrium: in public opinion, within both political parties, and for political economy reasons. However, it is possible that South Korean policy could shift with the elections of December 2007. However, in both countries, North Korea’s decision to return to the Six-Party Talks resulted in a resumption of the strategy of engagement and a reversal of the sanctions that had been imposed. The joint declaration following the October 2007 North-South summit, in particular, outlined an ambitious set of economic cooperation objectives for the two countries. Second, and ironically, while the crisis and sanctions have forced a certain degree of commercialization on North Korea, the arguments about the transformative effects of engagement are more likely to hold with respect to Chinese trade and investment with North Korea than they are with South Korea’s, which contains a very substantial noncommercial component. South Korea’s economic ties continue to be characterized by a relatively high level of state involvement, either directly (in the relatively high share of aid and financial transfers in total bilateral transactions) or indirectly (through

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subsidies to, or guarantees on, nominally commercial transactions, including those in the Kaesong industrial park). If the summit document is any indication, public investment by South Korea in North Korea is likely to expand, although investment in infrastructure and export-processing zones is arguably in support of commercial relations. China’s economic relations with North Korea, however, are increasingly conducted on a commercial basis. Even when large projects involve complementary investments in infrastructure by larger Chinese firms, these activities do not appear to be subsidized by the central government in Beijing and are thus struck with an eye to their profitability. The extensive involvement of the South Korean government in investment and trade relations with North Korea, and the very large role played by outright transfers in the relationship, raises serious questions about whether engagement will have the socializing effects that its proponents suggest. To be sure, Chinese shipments of food and particularly oil constitute examples of government-to-government support. But to these aid relations have been added an increasingly dense network of other trade and investment ties that are having a much more immediate commercializing effect on North Korea’s external sector and, through the distribution chains that are emerging, on the domestic economy as well. Perhaps because of North Korean reluctance to open more fully to Korean-speaking investors, foreign investment from South Korea is largely confined to Kaesong and a handful of other enclave-like investments in processing. A final point looks forward. The crisis of the mid-1990s, incremental economic reforms, and continuing incentives for earning foreign exchange have resulted in an increasing commercialization of North Korea’s external economic relations, a development that we believe parallels domestic economic processes.37 If this is true, then the North Korean leadership could be somewhat more constrained by external economic pressures than it was in the past. The regime’s preoccupation with the Banco Delta Asia case can be interpreted as a concern about accounts controlled directly by the leadership, but it also no doubt reflected the effectiveness of these financial sanctions in crippling other commercial opportunities as well. Although we should assume that the overall direction of North Korea’s foreign economic relations are dictated from the top, the growth of foreign trade and investment could signal a somewhat more complicated political economy. The leadership has hardly been attentive to the interests of the population as a whole, but it may be increasingly constrained in the future by emergent economic elites with interests in the foreign sector.

NOTES The research for this chapter was supported by a generous grant from the Smith Richardson Foundation; our thanks to Allan Song for facilitating this grant.

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We would also like to thank Jihyeon Jeoung and Erik Weeks for research assistance and Sung Chull Kim, David Kang, Daniel Pinkston, and other members of the project for their comments and Lawrence and Sallye Krause for ongoing support. 1. On the problematic nature of statistics on the North Korean economy, see Marcus Noland, “Between Collapse and Revival: A Reinterpretation of the North Korean Economy,” (2001), http://www.iie.com/publications/papers/paper. cfm?ResearchID=401; and Nicholas Eberstadt, The North Korean Economy: Between Crisis and Catastrophe (Piscataway, NJ: Transaction Books, 2007). 2. For a more complete version of the exercise in this chapter in general and a full discussion of sources and methods used to construct the estimates in the figures in particular, see Appendix to Stephan Haggard and Marcus Noland, “North Korea’s External Economic Relations,” Peterson Institute for International Economics Working Paper 07-7 (August 2007) at http://www.iie.com/publications/interstitial. cfm?ResearchID=794. 3. Ibid. 4. In using mirror statistics, one uses the bilateral exports (imports) of a partner country as an estimate of North Korea’s imports (exports) from that partner. For a more complete discussion of this approach and some of the more specific challenges presented by the North Korean case, see Marcus Noland, Avoiding the Apocalypse: The Future of the Two Koreas (Washington, DC: Institute for International Economics, 2000), chapter 3. 5. The timing of this trough in trade corresponds to the Asian financial crisis and a slowdown in Japan, but given the closed nature of the North Korean economy it is not clear that the regional financial crisis mattered; political factors seem more significant. 6. For more detailed discussion of the basis of these estimates, sources, and estimated trends in the components of North Korea’s illicit trade, see Haggard and Noland, “North Korea’s External Economic Relations.” 7. It should be noted, however, that this trade is not necessarily entirely under the central government’s control. It may be a net addition to foreign exchange earnings when viewed from the perspective of the country as a whole, but accrue, for example, to individual military units, trading companies, or rogue drug dealers. 8. In addition to weapons, the North Koreans export a variety of militaryrelated training, consulting, and praetorian guard services. See Noland, Avoiding the Apocalypse, chapter 3. 9. See for example, Richard F. Grimmmet, Conventional Arms Transfers to Developing Nations, 1998–2005 (Washington, DC: Congressional Research Service, 2006). 10. See for example David E. Sanger, “U.S. Widens Campaign on North Korea,” New York Times, October 24, A7. 11. UN Security Council Resolution 1718, paras. 8 and 9. 12. See Raphael Perl, “Drug Trafficking and North Korea: Issues for U.S. Policy,” CRS Report to Congress, Congressional Research Service, March 4, 2005, 7–10; and Sheena E. Chestnut, “Illicit Activity and Proliferation: North Korean Smuggling Networks,” International Security 32, no. 1 (2007): 80–111. Although drugs almost certainly dominate North Korea’s smuggling activity, there is evidence—in the form of diplomatic expulsions—for trade in other sanctioned items, including so-called

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“conflict” diamonds from civil war zones in Africa, rhino horns, and ivory. See, for instance Marcus Noland, Avoiding the Apocalypse; David L. Asher, “The North Korean Criminal State, Its Ties to Organized Crime and Possibility of WMD Proliferation,” Nautilus Institute Policy Forum Online 05-92A, November 15, 2005 at http://www.nautilus.org/for a/security/0592Asher.html; and Peter A. Prahar, “North Korea: Illicit Activity Funding the Regime,” Statement before the Subcommittee on Federal Financial Management, Government Information, and International Security Senate Homeland Security and Government Affairs Committee, April 25, 2006. North Korea has also been accused of committing insurance fraud, as demonstrated by Dick K. Nanto and Raphael Perl, “North Korean Crime-for-Profit Activities,” CRS Report for Congress, Congressional Research Service, February 16, 2007. 13. Peter A. Prahar, “North Korea: Illicit Activity Funding the Regime,” Statement before the Subcommittee on Federal Financial Management, Government Information, and International Security Senate Homeland Security and Government Affairs Committee, April 25, 2006. 14. David L. Asher, “The North Korean Criminal State, Its Ties to Organized Crime and Possibility of WMD Proliferation,” Nautilus Institute Policy Forum Online 05-92A, November 15, 2005 at http://www.nautilus.org/for a/security/0592Asher. html. 15. The March 2000 International Narcotics Control Strategy Report (INCSR) report estimated the area under opium cultivation in North Korea at 4,200 to 7,000 hectares in 1998, which would yield 30 to 44 metric tons of opium, or 4.6 to 6.8 metric tons of heroin at a conversion rate of 6.5 to 1. In 2002, according to the World Drug Report, the farmgate price of opium ranged from a low of $142 a kilogram (in Afghanistan) to $234 a kilogram (in Myanmar). If we take the generous estimate of $200 a kilogram, this would yield a total farmgate value for opium production of $6 to 9 million. On the other hand, the United Nations Drug Control Program of 2003 reports wholesale prices of heroin in China for 2001 at approximately $20,000 a kilogram, which would yield a total value of approximately $92–135 million, assuming the North Koreans were able to get this wholesale price on all output. Yet prices of heroin on other markets have undergone a sharp decline—as much as 50 percent in wholesale prices—following the collapse of the Taliban regime in Afghanistan and the resurgence of production in that country. 16. Sheena E. Chestnut, “Illicit Activity and Proliferation: North Korean Smuggling Networks,” International Security 32, no. 1 (2007): 80–111. 17. See International Narcotics and Law Enforcement Affairs, United States Department of State, International Narcotics Control Strategy Report (March 2005). 18. Ibid, 68. 19. Due to macroeconomic instability and the declining value of the North Korean won, the North Korean government may also print counterfeits to capture seignorage internally, and some of these notes may simply leak out through North Korea’s cash-based external transactions. 20. Chestnut, “Illicit Activity and Proliferation: North Korean Smuggling Networks,” chapter 4; Josh Meyer and Barbara Demick, “U.S. Accuses North Korea of Conspiracy to Counterfeit,” Los Angeles Times, December 18, 2005; Raphael Perl, “North Korean Counterfeiting of U.S. Currency,” CRS Report to Congress, Congressional Research Service, March 22, 2006.

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21. Macau’s lack of cross-border currency reporting requirements had made it a center for North Korea’s offshore financial activities. In the wake of the finding, Banco Delta Asia experienced a severe run on deposits and subsequently severed connections with fifty North Korean individuals or businesses—many believed to be military- or party-related. The bank also replaced several managers and allowed a panel named by Macau’s government to administer its operations. See Demick and Meyer, “U.S. Accuses North Korea of Conspiracy to Counterfeit.” A subsequent audit of the bank’s activities with North Korea was conducted by Ernst and Young. For more details, see Tim Johnson and Kevin Hall, “Owner of Macau Bank Denies Illegal Dealings with N. Korea,” McClatchy Newspapers, March 27, 2007, at http://www.realcities.com/mld/krwashington/news/columnists/kevin_g_hall. Also see Kevin Hall, “Treasury Casts a Wide Net under Patriot Act,” McClatchy Newspapers, March 12, 2007, at http://www.realcities.com/mld/krwashington/news/columnists/kevin_g_hall; Kevin Hall, “U.S. Challenged on Action against Key Bank,” McClatchy Newspapers, April 16, 2007, at http://www.realcities.com/mld/krwashington/news/columnists/kevin_g_hall/; Kevin Hall, “Money Laundering Allegations by U.S. False, Report Says,” McClatchy Newspapers, April 16, 2007, at http://www.realcities.com/mld/krwashington/news/columnists/kevin_g_hall/; Kevin Hall, “Gold Sales May Have Spurred Macau Bank’s Blacklisting,” McClatchy Newspapers, April 17, 2007, at http://www.realcities.com/mld/krwashington/news/columnists/kevin_g_hall/; and Kevin Hall, “Bank Owner Disputes Money-laundering Allegations,” McClatchy Newspapers, May 16, 2007, at http://www.realcities.com/mld/krwashington/news/columnists/kevin_g_hall. 22. Ibid. Hall, “Money Laundering Allegations by U.S. False, Report Says.” 23. Anna Fifield, “North Korea Passed Millions via Macao Bank Banco Delta Asia,” The Financial Times, December 18, 2006, 12; Hall, “U.S. Challenged on Action against Key Bank”; Hall, “Money Laundering Allegations by U.S. False, Report Says”; Hall, “Gold Sales May Have Spurred Macau Bank’s Blacklisting”; Hall, “Bank Owner Disputes Money-laundering Allegations”; Steven R. Weisman, “How U.S. Turned North Korean Funds into a Bargaining Chip,” New York Times, April 22, 2007. 24. Chestnut, “Illicit Activity and Proliferation: North Korean Smuggling Networks,” and Asher, “The North Korean Criminal State, Is Tied to Organized Crime and Possibility of WMD Proliferation.” 25. Coalition of Tobacco Companies, “Production of Counterfeit Cigarettes in the Democratic People’s Republic of Korea,” June 29, 2005. 26. Nicholas Eberstadt, “How Much Money Goes from Japan to North Korea?” Asian Survey 36, no. 5 (May 1996): 523–42; Jennifer Lind, “Gambling with Globalism: Japanese Financial Flows to North Korea and the Sanctions Policy Option,” Pacific Review 10, no. 3 (1997): 391–406; Christopher W. Hughes, “Japan-North Korea Relations and the Political Economy of Sanctions,” unpublished manuscript, University of Warwick (2005); and Noland, Avoiding the Apocalypse, 130–33. 27. Larisa V. Zabrovskaya, “Economic Contacts between the DPRK and the Russian Far East: 1992–2005,” International Journal of Korean Unification Studies 15, no.2 (2006): 95–111. 28. Myong Chul Cho and Jiyeon Kim, “Pukhan u˘i haewaejinchul hyo˘nhwang kwa sisajo˘m” (Current Status and Implications of North Korea’s Overseas Business),

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World Economy Update 7, no. 31 (Seoul: Korea Institute for International Economic Policy, 2007). 29. Yoonok Chang, Stephan Haggard, and Marcus Noland, “North Korean Refugees in China: Evidence from a Survey,” in The North Korean Refugee Crisis: Human Rights and International Response, ed. S. Haggard and M. Noland (Washington, DC: U.S. Committee for Human Rights in North Korea, 2006). 30. Stephan Haggard and Marcus Noland, Famine in North Korea: Markets, Aid, and Reform (New York: Columbia University Press, 2007). 31. Ibid. 32. The Korea Energy Development Organization’s (KEDO) remit was to construct two nuclear reactors to replace the nuclear facilities shut down under the Agreed Framework. In addition, it provided 500,000 metric tons of heavy fuel oil a year to North Korea. More than $4 billion was pledged to this effort, principally by the governments of South Korea and Japan. The United States was principally responsible for the provision of heavy fuel oil. However, the lion’s share of KEDO funds were both raised and spent outside of North Korea; we are interested solely in what was actually transferred to North Korea. This would appear to consist only of the heavy fuel oil and whatever funds were used for site construction, including payment for workers and shipped construction materials such as cement. The project was effectively suspended with the onset of the nuclear crisis in October 2002. Heavy fuel oil shipments were stopped in December 2002. LWR construction slowed to a halt in 2003–04 and KEDO itself was formally terminated in 2005. 33. Marcus Noland and L. Gordon Flake, “Opening Attempt: North Korea and the Rajin-Sonbong Free Economic and Trade Zone,” Journal of Asian Business 13, no. 2 (Spring 1997): 99–116. 34. For a full discussion of sources and the basis of our estimates, see Haggard and Noland, “North Korea’s External Economic Relations.” 35. Christopher W. Hughes, “The Political Economy of Japanese Sanctions towards North Korea: Domestic Coalitions and International Systemic Pressures,” Pacific Affairs 79, no. 3 (2006): 455–81. 36. The South Korean government announced that it was not accepting further applications for the Kaesong Industrial Complex, but did not restrict the activities of the firms already in the zone. 37. Haggard and Noland, Famine in North Korea.

THE STATE-BUSINESS COALITION

PART II

THE INTER-KOREAN DIMENSION

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SEVEN

THE STATE-BUSINESS COALITION FOR SOUTH KOREA’S ENGAGEMENT WITH NORTH KOREA Sung Chull Kim

The South Korean government’s engagement strategy toward North Korea survived over the course of both Kim Dae Jung’s presidency (1998–2003) and that of his successor Roh Moo Hyun (2003–2008). In spite of the two naval skirmishes on the Northern Limit Line in 1999 and 2002 and of the North Korean nuclear test in 2006, the fundamentals of South Korea’s engagement strategy was maintained. Considered symbolic achievements of the policy, especially by South Korean government authorities, are the Mt. Kumgang tourism project (launched in 1998), the Kaesong Industrial Complex project (launched in 2000), and the connection of the two railways crossing the North-South border (in 2007). The past two administrations’ policy toward North Korea was intended to buy peace, that is, to use economic tools for achieving security objectives. The intervening variable of the cause-and-effect relationship between engagement and peace was economic interdependence, which was frequently termed as the establishment of a “South-North Economic Community.” The Lee Myung Bak administration, launched in February 2008, emphasizes resolution of North Korean nuclear issue prior to expansion of inter-Korean economic relations; however, it is noteworthy that the new administration has tried to maintain a core element of the engagement, particularly the Kaesong Industrial Complex project. The main elements of the engagement still survive in spite of the recent administration change.

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To what extent has the South’s economic engagement with the North worked to achieve the objective, the Korean Peninsula’s overall stability? This broad question involves an assessment of the effectiveness of the South’s engagement with the North, in general. No rigorous answer to this question can derive from an isolated examination of the South Korean engagement strategy. As seen in the internationalization of the North Korean nuclear issue, stability on the peninsula depends not merely on South Korean efforts but also on the policies of the four powers (the United States, Japan, China, and Russia) and on North Korea’s responses. That is, for the Korean Peninsula’s stability as a dependent variable, there are many independent variables. For practical purposes, therefore, this chapter addresses a narrower question. To what extent has the domestic coalition in South Korea, particularly between the state and business, succeeded in instituting interdependent economic relations with the North? In relation to the state-business coalition for engagement, one must take into account two important points. First, durability is one of the essential requirements for successful engagement. In his seminal work, National Power and the Structure of Foreign Trade published in 1945, Albert O. Hirschman noted the significance of consistency as a precondition for the success of any engagement. Here I use the term durability, instead of consistency, in order to convey the meaning not only of the strategy’s consistency but also its shelf life.1 To examine the durability, one has to observe whether or not the coalition is strong enough to cope with challenges that arise both on the domestic front and in inter-Korean relations. This kind of examination involves analyses of (1) how well the South Korean engagement coalition has drawn consistent support in the domestic front, and (2) the extent to which the two Koreas have institutionalized commercial practices between different types of economic systems. Second, as far as the engagement coalition aims at transformation of the external policy in the target country, one of the most challenging tasks concerns empowerment of a segment of the target society that supports opening and cooperation.2 In this context, the South’s engagement coalition should foster the emergence of independent economic actors—or at least, soften the politicized command economy—in the North. Success of engagement depends specifically on the degree to which continuous economic transactions between the North and the South can cultivate the growth of a parallel economic partner in the North. With the existence of North Korean partners, the South’s economic engagement may contribute to furthering economic interdependence between the two Koreas; in turn, this deepening of economic interdependence may induce, rather than discourage, North Korean leaders to have a sufficiently favorable view of economic benefits and an equal fear of losing such benefits.

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In this chapter, I show that the state-business partnership under the Kim administration and Roh administration with regard to the venture into the North was not solid enough to endure divisive domestic politics and ensuing social polarization. A low level of institutionalization of commercial norms and practices in inter-Korean relations has constrained big conglomerates’ motivations to search for business opportunities in the North. In order for South Korean projects to have transformative effects on North Korea, it is necessary for the South Korean government and its business partners to further entrench business-based relations, as well as introducing necessary legal provisions. In this way, economic relations between the two Koreas may develop into genuine business cooperation whereby North Korea may consider that any disruption in the economic relations would cause a significant loss to the national interest.

THE COALITION FOR ENGAGEMENT: DEFINITION IN KOREAN CONTEXT By definition, domestic coalitions with regard to external relations are not always peace-prone. They may pursue a certain policy goal either through peaceful means or confrontational means. Jack Snyder and Etel Solingen have contributed greatly to the explanation of the coalition and its role in international relations.3 Snyder’s penetrating work on expansionism explains how nationalist ruling groups steamrolled potential and existing opposition groups in imperial countries, whereas Solingen explains how different types of domestic coalitions—the internationalization coalition and the nationalist coalition—yield different outcomes in international relations. Both scholars’ contributions lie in how they have carefully traced the way domestic forces view domestic and external situations and form a coalition to uphold a concerted strategy in dealing with international situations. The notion of the internationalization coalition has its merits, but another notion, the engagement coalition, must underlie any rigorous effort to discern the exact effects that the relations between domestic actors in South Korea had on inter-Korean relations. The engagement coalition led by Kim Dae Jung and Roh Moo Hyun regarding the North Korea policy has wound its way on the path of internationalization, that is, opening up to the international community. The engagement coalition has been a unique form of coalition whose objectives, in relation to North Korea, differ from overall policy undertaken by the authoritarian regimes under Park Chung Hee and Chun Doo Hwan from the 1960s to the 1980s. The authoritarian regimes formed a broad coalition, even if collusive, with business circles and adopted opening-up policies rather than nationalist, protectionist policies in external economic relations. Internationalization, even if the term (segyehwa in Korean) was not extensively used until 1995 by the Kim

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Young Sam administration,4 was considered the instrument for national survival in the era of severe inter-Korean confrontation. This anticommunist internationalization was maintained mostly by the general-turned-president Roh Tae Woo and even by the civilian president Kim Young Sam. In this regard, the goal of internationalization before the launch of the Kim Dae Jung administration corresponded to the policy of the containment of North Korea. The Kim Dae Jung administration, which was under pressure from the International Monetary Fund (IMF) owing to the 1997–98 financial crisis, developed a unique form of domestic coalition for engagement with the North. At the outset, it was the Hyundai group, rather than all chaebols (business conglomerates), that became a partner of the coalition in the South’s risky business advances to the North. With the construction of the Kaesong Industrial Complex, small- and medium-sized South Korean corporations have taken part in business ventures in North Korea. The engagement coalition under Kim Dae Jung and his successor Roh Moo Hyun has sought changes in North Korea through the expansion of inter-Korean economic relations. The logic of South Korea’s engagement with North Korea is strikingly similar to that of a group of liberals in the study of international relations, a group whose core belief is that economic relations among unfriendly states discourage conflict among them because they fear that conflict would erase the benefits yielded by the economic relations.5 To sum up, engagement with the North, under the two administrations of Kim and Roh, aimed at buying peace; it expected a security payoff out of the inter-Korean economic relations. In this regard, the Kim administration adopted the guideline (or working principle) of “separation between politics and the economy” at the initial stage of the Sunshine policy.6 This guideline meant that the South Korean government would pursue economic engagement with the North even under politically and militarily tense circumstances. According to this logic, deepened economic engagement would diffuse the existing tension in the long run. Indeed, the guideline survived several critical tests: a North Korean submarine’s infiltration into the South in 1998 and two naval skirmishes in the West Sea in 1999 and 2002. Furthermore, during Roh Moo Hyun’s presidency, the basic idea of the guideline has continued even after the North Korean nuclear test in October 2006. In a sense, just as the constructivist view presumes that continuous wellintended practices would bring cognitive changes in relevant countries, so the engagement strategy was intended to transform South Korea’s identity in the eyes of North Korea, from the imperial American puppet to the benevolent brother.7 Engagement with the North was the two presidents’ ambitious policy that aimed at changes in North Korea. The Hyundai group at first, and small- and medium-sized South Korean corporations later, became the government’s coalition partners for this strategy.

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OUTSET OF THE ENGAGEMENT STRATEGY As soon as Kim Dae Jung was inaugurated as president in February 1998, he launched unprecedented measures for national economic restructuring. The IMF’s standby package to save South Korea’s draining reserves, caused by the Asian financial crisis at the end of 1997, included a harsh conditionality requesting restructuring of the South Korean economy. The Kim administration used, in a sense, the IMF’s conditionality as an opportunity to root out chronic problems of the development-oriented economy and embarked on a restructuring of the private, public, labor, and banking sectors. All these measures ran parallel to economic liberalization and the general trend of internationalization.8 The policy trend of liberalization and internationalization was not new at that time, but its growing strength was attributable to the populist-turned-neoliberalist Kim Dae Jung’s orientation and to the financial crisis.9 The Kim administration diagnosed the South Korean economy’s problem in line with the “surprisingly orthodox” neoliberal perspective,10 and it sought to eradicate old, dreadful practices in the economy: banks’ favoritism on chaebol loans, family management, excessive expansion of chaebols, and waste and exaggeration in state-owned enterprises. There was logic of interplay between politics and the economy. First, the Kim administration made an attempt to attract public support by propagating the slogan “simultaneous development of democracy and the market economy,”11 but the administration was hardly able to envision an even greater democratic ideal amid the economic hardships brought on by the financial crisis. In the public’s eyes, success or failure of the restructuring seemed to determine the new administration’s economic performance and, in turn, seemed to indicate the legitimacy or the illegitimacy of the old opposition leader’s victory in the 1997 presidential election. High numbers of jobless people poured into the streets because of the bankruptcy of enterprises that could not survive the high interest rates enforced by the IMF conditionality. According to the data of the Korea National Statistical Office, the unemployment rate skyrocketed right after the financial crisis. The relatively low rate of 2.0 percent in 1996 and 2.6 percent in 1997 rapidly rose to 7.0 percent in 1998 and 6.3 percent in 1999.12 Therefore, successful restructuring, which might create new jobs in the long run, if not guarantee job security, became an important agenda item of the newly launched administration. Second, the Kim administration’s economic policy, whether it was adaptive or forced, was interconnected with the government’s engagement with the North. The Kim administration’s effort to reduce tensions between the two Koreas was not a simple policy choice but was closely related to both the successful implementation of the economic restructuring in the

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short run and further economic prosperity in the long run. If tensions prevailed on the Korean Peninsula and continued to promote increased defense spending, then the Korean economy would not have a bright future. At this particular juncture of the financial crisis, the Sunshine policy as a means to the improvement of inter-Korean relations, if not to immediate national reunification, came to attract public attention. That is, South Korea’s economic situation amid the financial crisis, in addition to Kim Dae Jung’s personal belief in the formula for peaceful unification, characterized the Sunshine policy’s initial context. As soon as the Kim administration was launched, it presented the three principles of its policy toward the North: no tolerance of armed provocation by the North, no intention of absorbing the North, and cooperation and reconciliation with the North. It is worth noting that the administration adopted a guideline of “separation between politics and the economy,” which was certainly intended to economically engage with the North and to leave unsolved security issues behind for the time being. The guideline meant that the South Korean government’s adopted restraint as a response to the North’s low profile provocations against the South and aimed to engage with the North for achieving the long-term goal of inter-Korean economic dependence, which would eventually bring cooperation from Pyongyang on security issues. No doubt this guideline was subsumed under the Sunshine policy’s broader objective of “buying peace.” The Kim administration was the prime mover; the president’s political orientation—and his presidential campaign slogan, “Improve the interKorean relationship within a year”—might have prompted the North to expect changes in South Korea’s traditional hard-line posture.13 But North Korea was the passive respondent in the South’s engagement strategy; the North was suspicious of the openly stated idea that Sunshine would disarm the militant North Korea and that the change in the North would, in turn, guarantee the economic prosperity of the two Koreas. The North was uncomfortable with exposing its vulnerability to the South, particularly regarding the former’s hunger-stricken economy and diplomatic isolation. South Korea, therefore, has tried to demonstrate its sincerity by supporting the North in the international community. South Korea’s strong desire for economic engagement with the North was well depicted in the so-called Berlin Declaration. In a speech that he delivered on the occasion of his visit to the Free University of Berlin in May 2000, Kim offered the North the construction of social infrastructure, including highways, harbors, railroads, and electric and communications facilities, and he suggested economic assistance for the improvement of North Korean agriculture, particularly the fertilizer, irrigation, and implements.14 There is no doubt that the Berlin Declaration contributed in part to the

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North Korean side’s serious consideration of the summit between Kim Dae Jung and Kim Jong Il in June of that year. The summit in June 2000 was a historic event in the sense that it was the first meeting between top political leaders of the divided Korea. At the same time, the summit was an important event for the rising momentum of economic engagement with the North. About the Joint Declaration, signed at the summit, political debates arose, particularly about the two agreements: one was the independent solution of the Korean issue, and the other was the collective effort for Korean reunification in following common elements of North and South Korean unification models. Critics maintained that the declaration was simply Seoul’s acceptance of Pyongyang’s longtime insistence on both an exclusion of foreign influence and Pyongyang’s federation unification formula. However, such criticism does not account for the whole story of the summit. Kim intended, through the summit, to lessen the tensions on the Korean Peninsula and aimed at peaceful coexistence with the North. For this goal, he maintained a surprisingly traditional security approach, that is, the American military presence and the security alliance with the United States. He stated only one month after the summit that the American forces based on the security alliance were crucial for peace on the Korean Peninsula and would be necessary even after unification, even though his statement could not undo the opposition’s skepticism of Kim’s lenience toward Pyongyang.15 Furthermore, Kim reiterated his belief that the summit could reduce the overall cost of the inter-Korean confrontation. Kim made efforts to realize the belief by supporting North Korea’s attempts to open new diplomatic relations with Western countries. Indeed, with diplomatic support from Seoul, Pyongyang established normalized relations with sixteen countries and the European Union in only three years (from 2000 through 2002).16 The diplomatic opening enabled North Korea to receive humanitarian aid from the international community as well as from South Korean NGOs. Engagement with North Korea was a double-edged policy. It needed both domestic support and North Korea’s cooperation. In coping with strong resistance from conservative forces, the administration did its utmost to promote the legitimacy of its policy. The Ministry of Unification and the National Unification Advisory Council became the spearhead of policyrelated information dissemination and of public opinion measures that derived from frequent survey studies. The role of nongovernmental organizations (NGOs), particularly those related to humanitarian assistance targeting the North and to peace movements, became more visible than before. The NGOs acted not only as aid providers but also as forerunners for the disarming of deeply rooted cold war mentalities—namely, anticommunism—in South Korean society. It is also notable that the Korean

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Council for Reconciliation and Cooperation was launched in September 1998 as an overarching organization that includes existing NGOs whose ideological spectrum ranges widely from left to right.

COLLUSIVE COALITION AT THE INITIAL STAGE OF ENGAGEMENT The engagement coalition first appeared in a rudimentary fashion, a collusive coalition, which was evidenced by the scandal surrounding the Hyundai group’s remittance to a North Korean trading company’s account. The collusion was publicly revealed by an independent counsel’s investigation team in August 2003. With the special mission of investigating the scandal of remittance to North Korea by Hyundai Asan, a firm of the Hyundai group, the independent counsel probed alleged collusion, between the Kim Dae Jung administration and the Hyundai Asan, of arranging the summit talk with Kim Jong Il in June 2000. According to the investigation result, US$450 million in cash and US$50 million in goods and services, in the name of economic cooperation funds, were sent to North Korea by Hyundai Asan right before the inter-Korean summit.17 The independent counsel concluded that the cash remittance was closely linked to the summit. In addition, the independent counsel found that the government had arranged for Hyundai Asan to get illegal loans from the state-run Korean Development Bank and took measures to help Hyundai Asan covertly remit the cash to a North Korean bank account.18 The “remittance scandal” evidenced persistence of collusion even in the period of economic restructuring. Given the tense situation between the two Koreas, Hyundai Asan considered the summit an effective means to open the path for its entrepreneurial advance to the North, that is, a way to obtain monopoly rights in businesses in the North, such as the Mt. Kumgang tourism project and the construction of the Kaesong Industrial Complex. Why did the newly launched Kim Dae Jung administration and the Hyundai group become coalition partners for engagement with the North at the end of the 1990s? The coalition, especially between the Kim administration and the Hyundai group, was a kind of replica of the previous experiences of symbiotic state-business relations. In the period of rapid economic growth under the authoritarian regime, the government not only facilitated the expansion of chaebols but was involved in corruption, as well. The historical profile of collusion remained mostly intact even under the civilian government led by Kim Young Sam. Even in the intensifying trend of globalization in the mid-1990s, South Korea’s business sector had been reluctant to change its collusive patterns, simply relying on government favors for procurements of domestic bank loans and for access to foreign financial sources.19 The businesses’ heavy dependence on short-term loans

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with high interest rates had culminated in a dangerous liability on the eve of the financial crisis.20 Indeed, the structural source of the financial crisis was attributable to the chaebols’ chronic reliance on short-term high-interest debts from domestic and foreign financial institutions.21 In this context, the collusive form of the coalition under Kim Dae Jung’s administration should not be a surprise. Let us look at the Hyundai side of the coalition in detail. At the individual level, Hyundai founder Chung Ju Young’s personal motivations and regional origins were important. Chung was born in Tongchon in Kangwon Province, located just north of the present North-South border, in November 1915. When he visited his home town in 1989 for the first time, the adventurous entrepreneur not only reunited with his separated relatives but surveyed business opportunities, as well. He presented to North Korean authorities a blueprint of the development project for Mt. Kumgang tourism, which was the first and most ambitious offer that a South Korean businessman had ever made to Pyongyang. Chung was able to realize his business adventure as Kim Dae Jung assumed the presidential office in February 1998. Of note is that Chung’s 1989 visit to North Korea was supported by the Roh Tae Woo administration’s Nordpolitik.22 That is, despite the many differences between Nordpolitik at the end of the 1980s and the engagement strategy a decade later, the two incarnations had a common strand insofar as each responded to the government’s need of an economic partner. At the corporate level, the Hyundai group had a relatively less severe burden of short-term debts than other chaebols did. Under the harsh pressure of restructuring, most businesses attempted to downsize their scale and lessen management and labor costs. An important criterion for the downsizing was profitability. After the Daewoo group established business ties with the North in the first half of the 1990s,23 many other conglomerates and small corporations gradually made overtures to the North in order to survey markets and industrial bases there. The businesses were looking into the unforeseeable future rather than reach for tangible results in the short term. Facing the financial crisis in general and the debt problem in particular, however, most of them had to minimize the size of the inter-Korean business projects because of low profitability and thus needed to maintain only the projects’ minimal functions, such as information collection and any existing trade.24 But the Hyundai group took its own path toward the establishment of an adventurous business in North Korea, particularly toward the realization of the tourism project at Mt. Kumgang. The Hyundai group’s advance to the North may be attributable also to the repression of the previous administration under Kim Young Sam between 1993 and 1997. The political landscape at the beginning of the 1990s was seemingly a battlefield occupied by old politicians pitted against empowered businessmen, even though collusion still existed behind the battle lines.

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One of the sources of the empowerment was the chaebols’ ownership of nonbanking financial institutions in the 1980s. These institutions involved insurance, securities, and short-term finance companies for the accumulation of their own financial resources.25 The battle between the government and the business sector culminated in the Hyundai group’s explicit involvement in politics in 1992.26 At the nationwide election of the National Assembly in March, the new Hyundai-sponsored party, the Unification National Party, made a surprising political showing, netting 17 percent of the votes and 10 percent of the seats. Furthermore, the Hyundai group’s honorary chairman, Chung, ran an aborted bid for the presidency in the December election. With the aborted political journey, Chung as a businessman wasted money on the campaign. Also, the Hyundai group as a conglomerate lost a chance for entrepreneurial expansion during President Kim Young Sam’s years in office between 1993 and 1997. Other chaebols that had been in business competition with the Hyundai group expanded from the manufacturing industry to service industries such as finance and imports. In contrast, the Hyundai group maintained a relatively calm status in the business circle, under the cold gaze of the Kim Young Sam administration. Hyundai undertook no new business expansion during the period, with the single exception of establishment of an aerospace technology corporation. Even this was an existing venture from Hyundai Precision Machinery, whose origin dated back to the 1970s.27 For the Hyundai group, the end of Kim Young Sam’s rule was a chance to jump into a new field, in contrast to Hyundai’s competitors. What did the Hyundai group aim at in arranging—with tremendous cash payments—the inter-Korean summit in 2000? The Hyundai group pursued long-term monopolistic land-use rights. The concrete targets were the Mt. Kumgang tourism project and the Kaesong Industrial Complex. The tourism project started even before the 2000 summit,28 whereas the Kaesong Industrial Complex project gathered momentum in August 2000, right after the inter-Korean summit. Chairman of Hyundai Asan Chung Mong Hun met Kim Jong Il and announced that the Kaesong area would be a special economic zone in which the company would have development rights for fifty years.29 Because the Kaesong project involves the development of various types of infrastructure, including electricity, telecommunications, water, roads, housing, and leisure facilities, its size accounts for sixty-six million square meters and requires long-term investment. It is noteworthy that the Hyundai group’s business engagement in the North was followed by the North’s legalization of the projects and by the South’s offer of economic assistance to the North. In November 2002, the Supreme People’s Assembly in Pyongyang passed two laws that specifically indicated two regions: Mt. Kumgang and the Kaesong area.30 Before Pyongyang’s adoption of the two laws, the North had maintained general

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laws that governed foreign direct investment and joint ventures. Through the laws concerning Mt. Kumgang and the Kaesong area, however, Pyongyang for the first time acknowledged South Korean companies’ independent management, not joint ventures but direct investment. The Mt. Kumgang project was initiated by Hyundai Asan alone, but the Kaesong project has been undertaken by both the Korea Land Corporation and Hyundai Asan because of the latter’s substantial losses in the Mt. Kumgang project.

THE COALITION UNDER THE ROH ADMINISTRATION Seoul’s engagement strategy and the respective domestic coalition have continued during the tenure of the Roh Moo Hyun administration, despite difficulties caused by Washington’s coercive policy toward Pyongyang (George W. Bush’s reference to an “axis of evil” in 2002, the U.S. financial sanctions on North Korean accounts at Banco Delta Asia since 2005, and the two U.S.-led resolutions at the UN Security Council in 2006). As the new president Roh was appointed in February 2003, he proclaimed the launch of the “Peace and Prosperity Policy,” whose basic principle derived from the Sunshine policy. The Roh administration’s engagement strategy differed from the Kim administration’s engagement strategy at the outset. Owing to the improved economic situation after the Kim administration’s repayment of the IMF emergency loans, Roh Moo Hyun was able to envision the hub role of South Korea in Northeast Asia. Soon after the presidential inauguration, Roh established the Presidential Committee on Northeast Asian Business Hub in April 2003—renamed the Presidential Committee on Northeast Asian Cooperation Initiative in June 2004. Roh’s idea of South Korea’s hub role was not limited to business ventures but extended to the security realm. In a speech at the Air Force Academy in March 2005, he declared that South Korea would play the role of a “balancer in Northeast Asia,” which brought about criticism both inside and outside of the country.31 On the other hand, Roh’s management of domestic economic affairs, particularly in labor issues, evolved into a populist policy. The government frequently intervened in the adjustment of wages and working conditions in favor of workers. With government assistance, the workers, particularly in the manufacturing and transportation sectors, had their job security and wage increases restored to a certain extent, a situation that had been considered taboo in the previous administration under economic restructuring. The previous administration’s neoliberal policies apparently retreated until the Roh administration launched FTA negotiations with the United States in June 2006. In security affairs, South Korea had to cope with two challenges at the beginning of the new millennium: anti-American sentiment32 and North Korean nuclear development. The anti-American sentiment was partly a

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result of the previous administration’s efforts to dismantle the vestiges of anticommunism. The South’s perception of North Korea changed; Koreans came to search for a new self-identity; they rethought the origins of the national division and the U.S.-South Korea relationship.33 With the death of two schoolgirls caused by an American armored vehicle in training during the 2002 presidential election campaign period, anti-American demonstrations erupted and spread nationwide. The personal nationalist orientation of Roh Moo Hyun, then a presidential candidate, was also important. He stated during the campaign period that he had never visited the United States, and his eventual presidential victory benefited partly from this anti-American sentiment. On the other hand, the newly embarked Roh administration inherited the second nuclear crisis from the previous administration. North Korea’s nuclear development, which had been submerged thanks to the 1994 Agreed Framework, entered another phase, as North Korea’s deputy foreign minister Kang Suk Ju allegedly admitted to an enriched uranium program on the occasion of Assistant Secretary James Kelly’s visit to Pyongyang in October 2002. With the South Korean public’s anti-American sentiment and the South Korean president’s personal orientation, the Roh administration resisted the Bush administration’s unilateralist approach, wherein lay the suggested possibility of a preemptive attack on North Korea’s nuclear facilities. The Roh administration, which could not resolve the nuclear crisis through its own capacity, had no other way but to consistently advocate a “peaceful solution” to the nuclear crisis.34 Engagement with the North under the Roh administration was a matter of controversy over transparency and efficacy in the political sphere. On the one hand, the Roh administration had to achieve the outcome with clean hands. The Hyundai group still remained a coalition partner to the government. In order to partially compensate for the loss of Hyundai’s tourism project at Mt. Kumgang, the government arranged a subsidy through the government-supported National Tourism Organization for students’ group tours during slack season, until the nuclear test.35 The government also allowed the government-supported Korea Land Corporation to join the Hyundai group for the construction of the Kaesong Industrial Complex just above the inter-Korean border. However, the Hyundai group was no longer a collusive partner to the government, and the involvement of the Korea Tourism Organization and the Korea Land Corporation in the projects in the North was no secret. Despite controversy in political circles over transparency with regard to these new partners, collusion was not a choice for Roh who demonstrated a strong will to eliminate corruption and collusion between politicians and businessmen. Especially after the release of the 2003 investigation report on the Hyundai group’s remittance scandal, there was a high political risk that attended any governmental collusion with the business sector in inter-Korean affairs.

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On the other hand, the Roh administration needed to provide evidence of the efficacy of the policy, that is, visible and symbolic outcomes, inasmuch as the opposition party pressed the administration to reexamine its entire policy toward North Korea and called the policy a “dumping” policy with no reciprocity.36 This was especially true amid the North Korean nuclear crisis. Results of the economic engagement with the North were visible in a sense in numerical indicators. The trade volume between the two Koreas expanded from US$222 million in 1998 to US$1,798 million in 2007. The number of visitors from the South to the North increased from 3,317 in 1998 to 158,170 in 2007; and the number of visitors from the North to the South also increased, though not to the same degree, from zero to 1,044.37 With the increase in economic interactions, South Korean business groups became more acquainted with the situation in the North and came to be more interested in the northern adventure than before. Despite controversy over the efficacy of the engagement strategy in political circles, the development project at the Kaesong Industrial Complex attracted the attention of small South Korean corporations, evidence that the engagement coalition continued.38 The South Korean government’s engagement with the North was accompanied by the business circle’s expression of preferences and needs to the South Korean government regarding a better North-South business environment. Such requests included more than just the South’s securing North Korea’s commitment to business agreements. However, South Korean business circles, realizing that these demands would require a long gestation period, focused on the processing trade. In reality, processing was the most important North-South commercial transaction since the engagement strategy started. A significant portion of inter-Korean trade involved the South’s sending of materials to the North for processing and the South’s receiving products from the North. In 2004, inter-Korean trade was composed largely of North Korean exports of agricultural and fishery products (39.5 percent) and textiles (37.2 percent) to the South and of the North’s import of South Korean chemical products (31.0 percent) and textiles (20.4 percent). Here, the textiles in both the exports and the imports were related chiefly to processing.39 South Korean processing corporations provided their partners in the North with all the needed supplies, and the North provided labor alone. Processing, a labor-intensive industry, expanded gradually in the Kaesong Industrial Complex. The channels through which South Korean business circles can transmit their preferences, as well as their grievances, to the government have developed. First, businesses have articulated their concerns to the Ministry of Unification in the process of business plan proposals, of plan approvals, and of reports of their contacts with North Korean partners. Officials at the ministry consider the businesses’ concerns and recent histories, including

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obstacles and difficulties. The officials then apply the information to future South Korean negotiations with Pyongyang. Second, some South Korean businesses and nongovernmental organizations have made frequent direct and organized demands.40 Meetings and forums, sponsored or organized by the Korea Trade-Investment Promotion Agency and the Korea International Trade Association, have provided prospective corporations with opportunities to articulate their preferences to the South Korean government.41 It is correct to note that the most important achievement of the Roh administration has probably been the legalization of inter-Korean economic relations. The two Koreas put into effect the Four Economic Agreements in August 2003: investment guarantees, the elimination of double taxation, mediation of trade disputes, and settlements through South and North Korean banks. It is noteworthy that there was withinput from the South Korean government,42 as well as input from business circles, in the expediting of the agreements with the North. South Korean officials in the negotiation process in 2003 pushed for the four economic agreements in order to maintain the momentum of the converging preferences and interests between the South Korean government and the business sector in relation to the policy toward the North. This convergence pattern apparently differed from the previous Kim administration’s collusive pattern. In 2006, South Korea adopted the Law for the Development of Inter-Korean Relations, through collective efforts by the administration and the legislature. The law was a product of South Korean government officials who understood the necessity of a comprehensive domestic law in relation to the South’s policy toward North Korea. (The two Koreas had signed the Basic Agreement in December 1991, but some South Korean officials and scholars questioned both the legal authority of the Basic Agreement and the legal legitimacy of subsequent inter-Korean agreements; indeed, the Basic Agreement, the well-documented principle of inter-Korean relations, has never been ratified by the National Assembly in the South.) The 2006 Law for the Development of Inter-Korean Relations legalizes the spirit of the 1991 Basic Agreement.43 The law defines inter-Korean relations as “special interim relations” instead of interstate relations; it also stipulates that the South Korean government shall make efforts to establish an “inter-Korean economic community” and build an institutional infrastructure for the activation of a North-South economy. Now, the 2006 Law governs the thirteen agreements on inter-Korean economic relations (including 2003’s Four Economic Agreements); it is noteworthy that the National Assembly, by employing exceptional procedures, had previously approved these thirteen agreements. Both the Four Economic Agreements in 2003 and the Law for the Development of Inter-Korean Relations in 2006 have enabled the South Korean state-business partners to undertake a more institutionalized engagement than before. Moreover, both the agreements and the law have justi-

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fied business ventures by characterizing them as an attempt to build the “South-North Economic Community.” These outcomes have been true even since tensions on the Korean peninsula rose because of the North Korean missile firings in July 2006 and the underground nuclear test in October of the same year.44 The South Korean intentions regarding strengthened engagement and extended project investment were further professed in the “Declaration on the Advancement of South-North Korean Relations, Peace, and Prosperity,” which was drafted on the occasion of the Roh Moo Hyun-Kim Jong Il summit in October 2007. One of the encouraging statements in the declaration was that the two governments would “promptly complete institutional measures, including those related to passage, communication, and customs clearance procedures.”45

HOW MUCH HAS THE ENGAGEMENT STRATEGY WORKED? The engagement strategy of South Korea has pursued a solution to the security problem on the Korean Peninsula by expanding economic relations with the North and rendering inter-Korean relations interdependent. The engagement coalition between the Kim administration and the Hyundai group could not overcome the old collusive pattern. The second phase of the engagement, by the Roh administration, has not taken that collusive pattern, but the administration was under pressure to produce visible results. Challenges to the Durability of the Coalition Public Support, Political Division If a division in relation to a certain foreign policy parallels power struggles reflecting severe social cleavages, political processes inhibit reaching an agreement.46 Insofar as the policy toward the North is double-edged, this logic has been true for South Korea’s engagement. Confrontations within political circles in the South have constrained reaching agreements with regard to the engagement strategy. The political confrontation in the South has led the South Korean government to adhere to visible and symbolic indicators rather than to the long-term objective, that is, changes in the North Korean economy. Indeed, there has been a high level of public support for the engagement. A survey conducted in 2005 shows that 84.8 percent of respondents supported the economic exchanges with the North (83.8 percent for the Mt. Kumgang project and 86.2 percent for the Kaesong Industrial Complex project) and that 73 percent of respondents supported the Roh Moo Hyun administration’s Peace and Prosperity Policy. Such high public support was remarkable in comparison to the low support at the initial

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stage of the engagement strategy under the Kim administration (26.9 percent for the Sunshine policy).47 South Korean public support for engagement accompanied the public’s similar support for a peaceful resolution of the North Korean nuclear issue, even while North Korea’s nuclear test in October 2006 triggered an increase in tensions. According to a survey conducted on the day following the test, 68.6 percent of respondents wanted to resolve the nuclear issue through dialogue rather than through sanctions against North Korea.48 Relatively high public support for engagement, however, was not accompanied by respective support in the National Assembly. The apportionment of seats in the National Assembly was divided almost equally between the ruling party, the Uri Party, on the one hand, and the opposition party, the Grand National Party, on the other. Indeed, prior to the impeachment of Roh by the legislature in March 2004, the ruling party had a minority; at the April election of that year, the ruling party barely took the majority. The political division paralleled the ideological polarization between the ruling party and the opposition party. Both sides shared the idea that South Korea should engage with and support North Korea, but they differed on the approach that South Korea should eventually take in dealing with the Kim Jong Il regime. The ruling party, represented by progressive politicians and former student movement leaders, took lenient measures in relation to North Korea under Kim Jong Il. The opposition party was the stronghold of anticommunism and vestiges of previous authoritarianism, so it stuck to the notion of regime change in North Korea. Notably, divergent perceptions on Pyongyang between these polarized groups led to quite opposite prescriptions for a strategy. The ruling group argued that economic engagement would bring about a change in their management of the economy and induce cooperative responses from the North. The opposition maintained that the engagement without reciprocity would strengthen the North’s economic capacity and threaten both the South’s security and regional peace. This difference relative to the engagement strategy was not compromised because of political struggles. It is no surprise that the engagement coalition in the South has been troubled by the political division. Ceaseless criticism from the opposition party was that foreign currency flowing from the two major projects—the Mt. Kumgang tourism project and the Kaesong Industrial Complex—would be misused for military purposes in North Korea. Because concrete evidence was not available, the criticism and the government’s counterargument continued along the lines of political divisions. In response to the criticism, the Roh administration adhered more to symbolic achievements and prospects of the engagement with the North

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than before. Amid the United States’ pressure on North Korea, the then Unification Minister Chung Dong Young stated in November 2005 that the number of employees and factories in the Kaesong Industrial Complex would be increased dramatically in three or four years, promoting the notion of “Korea peace economics” (economy for peace, peace for economy).49 It seems that not only did Chung try to emphasize the government’s will to continue the engagement strategy, but also he was eager to envision prospects of business in the North, namely, the Kaesong Industrial Complex. Likewise, the South Korean government made a symbolic deal with the North in April 2007: in return for the North’s receipt of four hundred thousand metric tons of rice and raw light-industry materials (worth US$260 million in total), the South could conduct test runs on the railway crossing the North-South border on the east coast and the west coast.50 This deal apparently reversed the South Korean government’s own commitment that the South would not send Northbound aid until the North’s shutdown of nuclear reactors. The shutdown, on which the members of the Six-Party Talks agreed in February 2007, actually occurred in July. Limitation of Institutionalization South Korea’s engagement coalition achieved legalization of basic regulations of inter-Korean economic relations to a certain extent, but the coalition could not yet render the North Korean side fully engaged with the South. Despite successive bankruptcies of South Korean corporations in North Korea and despite South Korea’s domestic polarization over North Korean affairs, small- and medium-sized enterprises have shown interests in cheap North Korean labor (no unions, no labor disputes) in the Kaesong Industrial Complex. The Four Economic Agreements between the North and the South, effective since August 2003, have contributed to the institutionalization of inter-Korean economic transactions. But the agreements have a deficiency, particularly in cases of disputes: under the present conditions, legal arbitration would not result in any tangible outcome because there is no room for a third, objective party to intervene, but only for North and South arbitrary committee members in same number. Furthermore, the agreements have not solved the procedural problems pertaining to passage, communication, and customs clearance even in the Kaesong Industrial Complex, which eventually aims to attract foreign direct investment. Such institutional deficiencies have constrained big conglomerates’ motivations to search for business opportunities in the North. Considering the problems seriously, President Roh persuaded North Korean leader Kim at the 2007 summit in Pyongyang to accept the South Korean demand for a prompt solution of the problems.

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Absence of Partnership in the North There is no question that the engagement coalition needs to facilitate a certain degree of economic independence from state control in the North. Without parallel partners in the North, South Korean businesses would find it difficult to extend their business opportunities, a situation that raises questions about the effectiveness of engagement with the North. In the case of the Kaesong Industrial Complex, the General Bureau of Central Special Districts of North Korea controls the labor supply to the South Korean factories and retains authority over wages; the South Korean side does not have power over personnel affairs and wage payment.51 It is apparent that North Korea, through its labor control, does not want to lose social control. The state’s economic control in North Korea often negatively affects the South Korean business side as well. When Hyundai Asan dismissed vice chairman Kim Yoon Kyu in October 2005, North Korea warned that the previous agreement between the North Korean authority and Hyundai Asan would be threatened.52 This case shows that North Korea intervened in the personnel affairs of the South Korean investor by favoring a particular person, an intervention that was not a matter of North Korean business concern. The South Korean government had no leverage in this regard and simply persuaded Hyundai Asan to resolve the issue through negotiations with the North Korean authority. The South’s engagement coalition has not successfully induced North Korean authorities to believe that the inter-Korean economic exchanges would yield sufficient reward to initiate major changes in the economic structure. Given this situation, it is noteworthy that North Korea has become more dependent since 2002 on economic exchanges with China, which supports the perpetuation of the existing regime under Kim Jong Il.53 North Korea’s rising dependence on China is not necessarily a zero-sum game with regard to South Korea’s engagement, but the situation reveals the limitation of the South’s leverage to lead the North to have a sufficiently favorable view of economic benefits derived from economic cooperation with the South. Just as North Korean leader Kim Jong Il expressed his distaste of such terms as reform and opening at the 2007 Roh-Kim summit in Pyongyang,54 it must be true that North Korea has cautiously tried to avoid both substantive change in the economic system and economic dependence on the South.

CONCLUSION The objective of South Korea’s engagement has been to obtain a security payoff by way of inter-Korean economic interdependence. Engagement has succeeded to some extent in institutionalizing inter-Korean economic transactions, especially with the two Koreas’ adoption of the Four Economic

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Agreements in 2003 and with the South Korean National Assembly’s passage of the Law for the Development of Inter-Korean Relations in 2006. This institutionalization has paved a path on which small- and medium-size South Korean corporations can undertake business ventures in the North, namely, at the Kaesong Industrial Complex. However, the institutionalization has not reached a level at which inter-Korean economic relations are stable: for instance, despite the Four Economic Agreements, South Korean corporations have suffered poor conditions in passage, communication, and custom clearances in the complex. This institutional deficiency has constrained big conglomerates’ motivations to search for business opportunities in the North. A serious challenge to the South’s domestic coalition and its economic engagement with the North has lain in the divisive politics in South Korea. The collusive pattern of the coalition, exemplified by the Hyundai’s remittance scandal, no longer exists. The opposition party and the ruling party (with the launch of the Lee Myung Bak administration, the status is reversed.), however, have differed with each other on two key issues: the nature of the existing regime in North Korea and the proper means of South Korean engagement with the North. The South’s engagement with the North was obviously an ambitious policy for inter-Korean economic dependence, but neither the Mt. Kumgang tourism project nor the railway border crossings has brought about economic interdependence between the two Koreas. For the South, the Kaesong Industrial Complex has been promising to a certain extent, but there are limitations also: one, the North Korean authorities would not allow the site to render the North Korean economy dependent on South Korea; and two, the industrial complex is so segregated from the rest of North Korea’s economy that the complex can induce no important changes in the structure of the North Korean economy. The North Korean strategy of avoiding dependence on the South will remain as before.

NOTES 1. For the debate on the effect of engagement particularly related to Hirschman’s argument, see Michael Mastanduno, “The Strategy of Economic Engagement: Theory and Practice,” in Economic Interdependence and International Conflict: New Perspectives on an Enduring Debate, ed. Edward D. Mansfield and Brian M. Pollins (Ann Arbor: University of Michigan Press, 2003), 180. 2. For the discussion about the significance of the combination of cooperative coalitions, see Etel Solingen, Regional Orders at Century’s Dawn: Global and Domestic Influences on Grand Strategy (Princeton: Princeton University Press, 1998), 64. 3. Jack Snyder, Myths of Empire: Domestic Politics and International Ambition (Ithaca: Cornell University Press, 1991); Etel Solingen, Regional Orders at Century’s

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Dawn; and Etel Solingen, “Internationalization, Coalitions, and Regional Conflict and Cooperation,” in Economic Interdependence and International Conflict, ed. Mansfield and Pollins, 60–85. 4. For Kim Young Sam, segyehwa is rhetorically a way of projecting a new Korean role conception that moves away from inter-Korean competition to the center of the Asia-Pacific region and the world community. But the role conception projected by the term was not realized, particularly in inter-Korean relations; Kim maintained deep distrust about communist North Korea during his presidency. Samuel S. Kim, “Korea’s Segyehwa Drive,” in Korea’s Globalization, ed. Samuel S. Kim (Cambridge: Cambridge University Press, 2000), 244. 5. See Solomon W. Polachek, “Conflict and Trade,” Journal of Conflict Resolution 24, no. 1 (1980): 57–78; Richard Rosecrance, The Rise of the Trading State: Commerce and Conquest in the Modern World (New York: Basic Books, 1986); Solomon W. Polachek and Judy McDonald, “Strategic Trade and the Incentive for Cooperation,” in Disarmament, Economic Conversion, and Peace Management, ed. Manas Chatterji and Linda Forcey (New York: Praeger, 1992), 273–84. For a recent theoretical survey, refer to Mansfield and Pollins, eds., Economic Interdependence and International Conflict. 6. For instance, President Kim Dae Jung conveyed the guideline to the minister of unification, citing the example of politically tense but economically cooperative China-Taiwan relations. Dong-a Ilbo, July 5, 1998. 7. Alexander Wendt, “Anarchy Is What States Make of It: The Social Construction of Power Politics,” International Organization 46, no. 2 (Spring 1992): 391–425 and “Collective Identity Formation and the International State,” American Political Science Review 88, no. 2 (June 1994): 384–96. For the case study of South Korea, see Son Key-young, South Korean Engagement Policies and North Korea: Identities, Norms, and the Sunshine Policy (London: Routledge, 2006), 60–62. 8. For the private sector, the government promoted transparent management, profit-oriented organizational reshuffling, debt curtailing, and mergers and acquisitions. The government made it easier for foreign investors to invest in South Korean businesses and thus help revitalize the moribund economy. For the public sector, the government implemented such measures as downsizing of administrative organizations, privatization of major state-owned enterprises, and cutting of pension and retirement benefits. For the labor sector, the Tripartite Commission, which included government, business, and labor representatives, promoted both social agreements that might enhance the flexibility of the labor market and social safety networks to protect workers in the event of mass layoffs. For the banking sector, the government’s restructuring program required commercial banks to increase the ratio of their own capital and to reduce their outstanding debts so as to enhance profitability and safety. All these measures ran parallel to economic liberalization and the general trend of internationalization. See Chung-in Moon and Dae-Won Ko, “Korea’s Perspective on Economic and Security Cooperation in Northeast Asia,” in Politics and Economics in Northeast Asia: Nationalism and Regionalism in Contention, ed. Tsuneo Akaha (New York: St. Martin’s Press, 1999), 178–83; Kim Gyoung Won and Kwon Soon Woo, eds., Oehwanwigi 5nyo˘n, Hanguk kyo˘ngje o˘to˘ke byo˘nhaenna (How Has the Korean Economy Changed in the Five Years

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of Financial Crisis?) (Seoul: Samsung Economic Research Institute, 2003), 248–49. All these measures ran parallel to economic liberalization and the general trend of internationalization. 9. Kim Dae Jung’s original ideological disposition was populism. In his first book on the Korean economy, Kim was critical of conglomerates, proposing an idea about how to restrict the concentration of wealth in their hands. His alternative approach was mass ownership and mass participation in management. But in the 1997 revised and updated edition, Kim included important elements of a liberal approach, particularly in the banking sector. These elements included independence of the central bank and liberalization of interest rates. See Kim Dae Jung, Mass-Participatory Economy: A Democratic Alternative for Korea (Center for International Affairs, Harvard University and University Press of America, 1985), 40–43; and Mass-Participatory Economy: Korea’s Road to World Economic Power, revised and updated ed. (Center for International Affairs, Harvard University and University Press of America, 1996), 98–120. 10. Stephan Haggard, The Political Economy of the Asian Financial Crisis (Washington, DC: Institute for International Economics, 2000), 100–101. 11. Indeed, the slogan represented a neoliberal approach whereby the state plays a leading role neither in the protection of enterprises nor in the cradle to grave welfare system, nor yet again in the assuring of public servants’ job security. Dong-a Ilbo, December 20, 1997. 12. The highest unemployment rate in the past decade was recorded as 8.5 percent in the first quarter of 1999. See http://kosis.nso.go.kr/cgi-bin/sws_999.cgi. 13. Kim Dae Jung presented for the first time a systematic point of view on North Korea and the reunification of Korea in a speech delivered on March 11, 1972, right after his return from the visits to the United States, Great Britain, France, West Germany, and Japan. In the speech, he advocated for the first time the “three-stage unification formula,” namely: (1) prevention of war and tension reduction, (2) expansion of exchanges, and (3) political unification. The three stages of the formula were later more formalized as (1) one federation and two republics, (2) one federation and two local governments, and (3) one state and one government. See Kim Dae Jung, Konghwguk yo˘nhapje: p’yo˘nghwagongjon, p’yo˘nghwagyoryu, p’yo˘nghwatong’il u˘i kil (Republican Confederation Formula: The Path toward Peaceful Coexistence, Peaceful Exchange, and Peaceful Unification) (Seoul: Hakminsa, 1991), 119–23, and Korea and Asia: A Collection of Essays, Speeches, and Discussions (Seoul: Kim Dae Jung Peace Foundation Press, 1994), 286–89. 14. Chosun Ilbo, March 9, 2000. 15. Kim Dae Jung stated that North Korean leader Kim Jong Il had shown agreement on the necessity—even after unification—for American forces on the peninsula for a regional balance of power. But Kim Jong Il’s response is the subject of confusion: depending upon different occasions and different sources, his reaction ranges from “substantial understanding” to “not totally opposed” and to “showing some strategic ambiguity.” For Kim Dae Jung’s statement, see Dong-a Ilbo, July 10, 2000; and for the different versions of Kim Jong Il’s response, see Selig S. Harrison, Korean Endgame: A Strategy for Reunification and U.S. Disengagement (Princeton: Princeton University Press, 2002), 172–73.

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16. Making an opportunity out of Seoul’s engagement strategy, North Korea began normalized relations with the noncommunist countries and the European Union as follows: Italy (January 4, 2000), Australia (May 8, 2000), the Philippines (July 12, 2000), the United Kingdom (December 12, 2000), the Netherlands (January 15, 2001), Belgium (January 23, 2001), Canada (February 6, 2001), Spain (February 7, 2001), Germany (March 1, 2001), Luxemburg (March 5, 2001), Greece (March 8, 2001), Brazil (March 9, 2001), New Zealand (March 26, 2001), Kuwait (April 6, 2001), Bahrain ( May 23, 2001), Turkey (June 27, 2001), and the European Union (May 14, 2001). Yonhap News, Pukhan Yo˘ngam 2003 (North Korea Yearbook 2003) (Seoul: Yonhap News, 2002), 424. 17. The former chairman of Hyundai Asan, Chung Mong Hun, who killed himself because of the psychological burden of the scandal, was quoted as telling the independent counsel that South Korea and North Korea had agreed that his company would pay US$400 million to North Korea and that the government would pay the North US$100 million. Chung alleged that this agreement had taken shape in May 2000, when Seoul and Pyongyang had been negotiating the first inter-Korean summit. However, the company shouldered the entire financial burden, including the amount that was supposed to be paid by the government. 18. Korea Times, August 4, 2003. 19. It is noteworthy that despite symbiotic, collusive relations, state-business relations have not remained constant. As time passed, the power of business has expanded and it has come to friction with the government. The culmination of the friction is the defiant Hyundai chairman Chung Ju Young’s involvement in politics in 1992. For the discussion about the transformation of state-business relations, see Eun Mee Kim, “Contradictions and Limits of a Developmental State: With Illustrations from the South Korean Case,” Social Problems 40, no. 2 (1993): 228–49, and Big Business, Strong State: Collusion and Conflict in South Korean Development, 1960–1990 (Albany: State University of New York Press, 1997). 20. South Korean chaebols’ mode of capital acquisition was different from that of Latin American enterprises. South Korean chaebols have relied largely on domestic and international loans, whereas the Latin American enterprises have equity-based financial structures. In addition, the South Korean case was peculiar in that the development-oriented government even guaranteed the conglomerates’ procurement of capital from foreign bankers. Marcus Noland, Avoiding the Apocalypse: The Future of the Two Koreas (Washington, DC: Institute for International Economics, 2000), 215. 21. The ratio of short-term debts continuously increased in the 1990s and reached 58.5 percent in 1996. This unhealthy reliance, along with the poor performance of the banks, rendered chaebols vulnerable to the crisis in 1997. Stephan Haggard, The Political Economy of the Asian Financial Crisis (Washington, DC: Institute for International Economics, 2000), 18–19. 22. It is noteworthy that the policy team for Nordpolitik, which was led by Park Chul Un, closely worked with the Hyundai group, a leading business conglomerate led by Chung Ju Young. In unfolding the Hyundai’s ambitious plan to advance to Siberia in case of normalized relations between South Korea and the Soviet Union, Park Chul Un supported the plan and mediated between President Roh Tae Woo and the businessman Chung. See Park Chul Un, Paru˘n yo˘ksa ru˘l wihan chu˘ng’o˘n (Testimony for Correct History) (Seoul: Random House Joongang, 2005), 151–54.

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23. The first inter-Korean economic ties surfaced as a result of a meeting between Kim Woo Jung, chairman of the Daewoo group, and North Korean leader Kim Il Sung in 1992. Between 1992 and 1996, Daewoo dominated inter-Korean economic relations, both in transactions and information. In 1996, the Daewoo group and North Korea’s Samcholli Company finally established a joint venture company named Minjok Sanop in Nampo, the gateway harbor of Pyongyang. The other South Korean conglomerates gathered information leaked from Daewoo’s North Korea channel. See, Lee Jhong Keun, “Nambuk witakgagong muyo˘k kujo e kwanhan yo˘ngu” (A study on the Structure of Inter-Korea Processing Trade) (MA Thesis, Graduate School of North Korean Studies, Kyungnam University, 2002), 29–32. 24. Interviews with Lee Jhong Keun (senior manager of North Korea Team, LG International Co.) and Kim Yeon Chul (research professor, Asiatic Research Center, Korea University) on February 2, 2004. 25. On the empowerment of the conglomerates, see Eun Mee Kim, Big Business, Strong State, 194–200. 26. Stephan Haggard and Chung-in Moon, “The State, Politics, and Economic Development in Postwar South Korea,” in State and Society in Contemporary Korea, ed. Hagen Koo (Ithaca: Cornell University Press, 1993), 92. 27. Jung Dae Yong, Asan Chung Ju Young u˘i kio˘pga jo˘ngsin (Entrepreneurship of Asan Chung Ju Young) (Seoul: Samyoungsa, 2001), 216–17. 28. Taking advantage of honorary chairman Chung’s meeting with North Korean leader Kim Jong Il, the Hyundai group was able to take a decisive step in the tourism project. In October 1998, the Hyundai group and Pyongyang committed themselves to the “Agreement on the Mount Kumgang Tourism Industry,” on the basis of which Hyundai started its operation of cruise ships on the East Sea in November. 29. On August 22, 2000, Hyundai Asan and Asia-Pacific Committee of North Korea established a contract to develop the Kaesong Industrial Complex. http://www. unikorea.go.kr/kr/KUL/KUL010201.jsp. 30. Chosen Shinpo, November 27, 2002 and December 2, 2002. 31. For Roh’s statement in relation to South Korea’s role as the balancer in Northeast Asia, see http://www.cwd.go.kr/cwd/kr/archive/archive_view.php?meta_id =speech&page=&category=&sel_type=1&keyword=%B0%F8%B1%BA%BB%E7% B0%FC%C7%D0%B1%B3&id=f5183d39b724c8abaeac57bd. 32. There are various interpretations of anti-Americanism (or anti-American sentiment) spread in South Korea. Anti-Americanism ranges from an ideology opposing all things American, to anti-imperialism embedded in ethnic nationalism, to the opposition to the U.S. strategy toward the Korean peninsula, and to citizens’ movements against the U.S. military presence. For a comprehensive discussion on the topic, see David I. Steinberg, ed., Korean Attitudes toward the United States: Changing Dynamics (New York: M. E. Sharpe, 2005); and Gi-Wook Shin, Ethnic Nationalism in Korea: Genealogy, Politics, and Legacy (Stanford: Stanford University Press, 2006). 33. Author interview with Lee Dae Hoon (civic activist, Deputy Secretary of People’s Solidarity for Participatory Democracy) on February 11, 2005. 34. Roh’s limited capacity may be attributed to growing civil society and the widening scope of democratization, which in turn contributed to the relatively

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shrunken presidential authority. Yong-Pyo Hong, “The Two Koreas in Northeast Asia: Linkages between Domestic, Inter-Korean, and Regional Politics,” in Regional Cooperation and Its Enemies in Northeast Asia: The Impact of Domestic Forces, ed. Edward Friedman and Sung Chull Kim (London: Routledge, 2006), 98. 35. Chosun Ilbo, November 20, 2006. 36. The term dumping to denounce the utility of the South Korean engagement policy has been used by critics since the first anniversary of the 2000 interKorean summit. When the second nuclear crisis erupted in October 2002, the term came to symbolize the polarization of society in relation to the policy toward North Korea. Dong-a Ilbo, October 19, 2002. 37. See www.unikorea.go.kr/index.jsp. 38. According to a survey analysis conducted by the Federation of Korean Industries in 2003, 41.7 percent of 171 responding companies professed their interests in opening businesses in North Korea, provided that the economic relations between the two Koreas improved. In particular, respondents from trade (75.0 percent), information technology (73.3 percent), and transportation (62.5 percent) exhibited relatively high interest in business in North Korea. Kwon Sun Bom, “Inter-Korean Economic Relations of Major Industries in 2003: Situation and Tasks” (CEO Report on Current Issues, Federation of Korean Industries, August 2003), 6. 39. Kim Young Yoon, “Inter-Korean Economic Cooperation and the Prosperity in the Korean Peninsula,” in 6.15 kongdong so˘no˘n kwa habando ui p’yo˘nghwa po˘nyo˘ng (June 15th South-North Joint Declaration and Peace and Prosperity in Korean Peninsula), ed. Korea Institute for National Unification (Seoul: KINU, 2005), 122–23. 40. The most recent umbrella organization is the Council of Private Economic Cooperation between South and North Korea, which was established in November 2003. 41. Interview with Dong Myong Han (senior manager of Inter-Korean Economic Cooperation Team, Small Business Corporation) on February 3, 2004. 42. On the concept of withinputs, see David Easton, A Framework for Political Analysis (Chicago: University of Chicago Press, 1965), 114. 43. See the Ministry of Unification, “Nambuk kwangyepaljon e kwanhan bo˘mnyul haeso˘l charyo” (The Guide of the Law for the Development of Inter-Korean Relations) (December 2005). 44. With regard to the engagement strategy after North Korea’s nuclear test on October 9, 2006, the government position swiftly changed from a policy evaluation to policy maintenance. President Roh Moo Hyun, on the afternoon of the test, said that “it is difficult [for the government] to say that the engagement strategy is the only policy [toward North Korea].” But he told leaders of the ruling party and the opposition parties on October 11, 2006, that “it is said that the engagement strategy brought about the nuclear test but the cause-and-effect relation should be examined.” Roh’s statement directed the governmental policy that the principles of the engagement with the North be maintained but with an adjustment of tactics of the policy. Chosun Ilbo, November 7, 2006. 45. See http://unikorea.go.kr/english/EPA/EPA0101R.jsp?main_uid=2181. 46. Helen V. Milner, Interests, Institutions, and Information: Domestic Politics and International Relations (Princeton: Princeton University Press, 1997), 96–97.

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47. Choi Jin Wook et al., Nambukkwangye u˘i chinjo˘n kwa kungnaejo˘k yo˘nghyang (Development of Inter-Korean Relations and Its Impact for Domestic Politics) (Seoul: KINU, 2003); Park Jong Chul et al., 2005nyondo tong’ilmunje kungmin yo˘ronjosa (Survey Analysis of the Unification Issues, 2005) (Seoul: KINU, 2005). 48. See http://www.chosun.com/national/news/200610/200610100273.html. 49. Yonhap News, November 28, 2005. 50. Hankook Ilbo, May 16, 2007. 51. It is said that South Korean companies in the Kaesong Industrial Complex hand over the employees’ total wage (around US$67 per worker) to the General Bureau of Central Special Districts and then the latter takes $8 (15 percent of wage) for social insurance and pays $17.70 (30 percent of wage) for sociocultural tax to the Kaesong People’s Committee. The bureau sends the rest of money, $41.30, to the Korea Commerce Joint Venture Company, which in turn provides the employees with imported consumer goods. Therefore, the workers are unable to benefit from the real value of the U.S. dollar, particularly the exchange rate in the underground market, which is usually far greater than that of the official exchange rate (US$1 = 140 won). http://www.chosun.com/politics/news/200611/200611080066.html. 52. Korea Times, October 20, 2005. 53. Of the total volume of North Korea’s trade with China, Japan, and South Korea, the Chinese share increased from 23.5 percent in 2000 to 39.1 percent in 2006. North Korea’s reliance on Chinese oil and food has continued; some 93.2 percent of oil and 29.8 percent of food in the yearly average between 2000 and 2004 came from China. See Park Jong Chul et al., “Bukhan u˘i Chungguk u˘ijon” (North Korea’s Dependence on China), Analysis Report 2006-4 (Seoul: KINU, March 2006), 10–11; Choi Soo Young, Puk-Chung kyo˘ngje kwangye hwaktae wa taeu˘ngbang’an (Expansion of DPRK-China Economic Relations) (Seoul: KINU, 2007), 78. 54. Daily NK, October 3, 2007. See http://www.dailynk.com/korean/read. php?num=47580&cataId=nk00100.

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EIGHT

BUSINESS ADVANCES TO NORTH KOREA AS OUTWARD FOREIGN DIRECT INVESTMENT Eun Mee Kim and Yooyeon Noh

Globalization is the most important phenomenon of the twenty-first century, with an ever-increasing number of firms crossing borders and setting up shop around the world. As trade and investment barriers continue to fade away, we are witnessing an explosive growth of transnational firms. South Korean firms are no exception to this development. Since the South Korean government gradually liberalized its outward foreign investment policy in the late 1980s, many South Korean companies have engaged in outward foreign direct investment (OFDI) as a strategic means of survival in the era of globalization. South Korea’s OFDI continued to expand rapidly, with the total value of stock rising from US$49 million in 1986 to US$66.6 billion by the end of 2005.1 In only twenty years, OFDI has grown by more than 1,359 times, or 68 percent per annum. It is worth noting that in spite of South Korean firms’ rapid expansion around the world, there were relatively few investments in North Korea because of the political and military tensions that remained on the Korean Peninsula. It was only after the 2000 summit between South Korea and North Korea that we saw substantial growth in South Korean investments in the North. This chapter has as its starting point the inter-Korean summit in 2000 and assumes that in order for South Korean investment into North Korea to be sustainable over time, private businesses must find investment

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opportunities in the North to be profitable beyond noneconomic incentives. The most recent joint agreement between the leaders of South and North Koreas at the second summit (October 2–4, 2007) is yet further evidence that the relationship between the two Koreas is changing, and that OFDI and other economic cooperation projects will receive strong support from South Korean business circles in the years to come. The newly inaugurated Lee Myung Bak administration (2008– present) is proclaimed to have a more conservative view toward North Korea compared to the two previous administrations; it is also known to be more business friendly and interested in having a stronger business presence in North Korea. Thus, there appear to be cautious optimistic projections about further economic cooperation projects in North Korea with a greater role played by the private sector.2 Thus, this chapter examines the South Korean private sector’s investment in North Korea and does so involving OFDI rather than aid or other means of unilateral assistance. This chapter is organized as follows. First, it reviews the literature on the determinants of both foreign direct investment (FDI) and South Korean firms’ motivation for investing in North Korea. Second, it presents an overview of the four phases of inter-Korean relations. Third, it examines in detail the three major inter-Korean economic cooperation projects: infrastructure projects, Mt. Kumgang tourism, and the Kaesong Industrial Complex. The chapter examines the Kaesong Industrial Complex in greater detail since it represents a new form of inter-Korean cooperation. The complex has been designated a special economic zone, in which many South Korean small- and medium-sized enterprises (SMEs) as well as large business groups have been involved.

DETERMINANTS OF SOUTH KOREA’S FDI Determinants of FDI John Dunning argues that a firm decides to invest in foreign countries mainly for three reasons as presented in his OLI paradigm: ownership advantages, location-specific advantages, and internationalization.3 According to this approach, firms endowed with ownership advantages or intangible assets expand operations to internationalize the benefits arising from ownership advantages and to match their strengths with location-specific comparative advantages. An earlier study on the determinants of South Korean OFDI shows that the primary motivation for South Korean firms to invest in developing countries has been consistent with Dunning’s location-specific advantages.4 Because North Korea’s level of economic development, cost of labor,

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and cost of other goods are in line with those of a developing nation, we will focus our analysis on the location-specific advantages of North Korea. Location-specific advantages include proximity to home country, low-cost labor, low energy costs and low raw material costs, and favorable tax treatment in the host country. Location-specific advantages are further classified by three types of motives for FDI.5 First, an investor undertakes market-seeking (or horizontal) investment in order to gain market access more easily, often by establishing operations in the main commercial hub of the host economy or in close proximity to key customers.6 The reason for this type of investment is to better serve a local market through local production; consequently, market size, market growth of the host economy, and low transport costs are the most important factors. In addition, protectionism in the form of tariffs and non-tariff trade barriers encourages market-seeking investment. Second, investing firms undertake resource-seeking (or vertical) investment when the firms can acquire resources that are not available in the home country,7 resources such as natural resources, cheap unskilled or semiskilled labor, and physical infrastructure. Also, Richard Caves argues that firms will invest abroad when the expected return exceeds the costs.8 Third, efficiency-seeking FDI is to rationalize the existing resource-based or market-seeking investments so that the investing firm can gain from sharing the governance of geographically dispersed activities. Cost differences between locations, the quality of infrastructure and business-related services, the ease of doing business, and the availability of skills are important attracting factors for investment.9 South Korea’s OFDI and Its Determinants Ever since South Korea’s OFDI outpaced inward foreign direct investment (IFDI) in 1990,10 South Korean OFDI has grown rapidly, rising to US$6.7 billion by 2005.11 We will review the overall pattern of South Korea’s OFDI in order to shed light on the pattern of OFDI to North Korea. Table 8.1 shows the geographical destination of South Korea’s OFDI from 1980 to the present. Until the mid-1990s, the largest destination was North America, but this trajectory changed abruptly when developing nations in Southeast Asia and China began to attract more OFDI from South Korea. China quickly rose to become the largest destination for South Korean OFDI by 1995, only five years after South Korea had begun OFDI in China. In the peak year of 2005, South Korea invested US$2.8 million in China, which accounted for 41.4 percent of total OFDI (US$6.7 million). Considering China’s robust economic development, it is very likely that South Korea’s OFDI will be the largest in Asia, and in particular, in China for the foreseeable future.

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Table 8.1 Worldwide Distribution of South Korea’s OFDI (thousand USD; %) 1980(a)

1985

1990

32,502 (22.4)

12,544 (11.1)

345,916 (35.9)

Canada

225 (0.2)

14,269 (12.7)

94,901 (9.9)

11,589 (0.4)

China

0 (0.0)

0 (0.0)

16,174 (1.7)

841,763 27.2)

Japan

2,482 (1.7)

324 (0.3)

6,768 (0.7)

67,623 (2.2)

Asia(c)

47,051 (32.4)

17,347 (15.4)

269,457 (30.0)

793,096 (25.6)

Middle East

22,608 (15.6)

10,298 (9.1)

40,276 (4.2)

31,624 (1.0)

Latin America

4,879 (3.4)

2,858 (2.5)

Europe

5,213 (3.6)

Africa

USA

Oceania Total

1995

2000

2005

2006(b)

538,276 1,384,581 1,243,492 1,324,414 (17.4) (27.3) (18.5) (17.8) 36,457 (0.7)

34,267 (0.5)

347,453 (4.7)

710,474 2,781,443 2,402,721 (14.0) (41.4) (32.3) 92,426 (1.8)

176,241 (2.6)

112,601 (1.5)

769,468 1,165,540 1,716,035 (15.2) (17.3) (23.1) 28,718 (0.6)

116,448 (1.7)

263,989 (3.5)

66,813 (6.9)

122,441 1,506,892 (4.0) (29.8)

307,168 (4.6)

229,750 (3.1)

38,813 (34.4)

63,873 (6.6)

613,253 (19.8)

290,980 (5.7)

627,420 (9.3)

681,142 (9.1)

25,226 (17.4)

231 (0.2)

26,518 (2.8)

41,599 (1.3)

156,252 (3.1)

114,884 (1.7)

162,867 (2.2)

4,975 (3.4)

16,091 (14.3)

32,421 (3.4)

39,427 (1.3)

89,628 (1.8)

152,838 (2.3)

114,100 (1.5)

145,201 (100.00)

112,775 (100.0)

963,117 3,100,690 5,065,876 6,719,141 7,455,072 (100.0) (100.0) (100.0) (100.0) (100.0)

Note: (a) Cumulative data from 1968 to 1980. (b) Data from January to September 2006. (c) Asia: Data exclude China and Japan, but include Southeast Asia and South Asia. Source: Korea EXIM Bank, Overseas Direct Investment Statistics Yearbook (Seoul: Korea EXIM Bank, 2006).

Table 8.2 shows the sectoral distribution of South Korean OFDI flows in 2005. South Korean OFDI is concentrated overwhelmingly in manufacturing, with more than 57 percent of the total OFDI. Likewise, South Korean OFDI in China has been concentrated overwhelmingly in the laborintensive light manufacturing sector, with 80 percent of OFDI—for example, textiles, footwear, and assembly industries such as electronic equipment.

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BUSINESS ADVANCES TO NORTH KOREA Table 8.2 Sectoral Distribution of South Korea’s OFDI, 2005 (thousand USD; %) Sector

Amount

Agriculture/Fishing/Forestry Mining Manufacturing Construction Wholesale and Retail Trade Logistics Telecommunications Banking/Insurance Hotels and Restaurants Services Real Estate

29,768 (0.4%) 457,255 (6.8%) 3,851,479 (57.3%) 157,860 (2.3%) 981,241 (14.6%) 122,522 (1.8%) 135,345 (2.0%) 2,792 (0.0%) 205,248 (3.1%) 617,443 (9.2%) 158,788 (2.4%)

Total

6,719,741 (100.0%)

Source: Korea EXIM Bank, Overseas Direct Investment Statistics Yearbook (Seoul: Korea EXIM Bank, 2006).

Seo and Lee conducted a survey among South Korean firms that had OFDI around the world.12 According to the responses obtained, the most important determinant for OFDI in developed nations in North America and Europe was “new market opportunity,” whereas the corresponding determinant in developing nations in Latin America and Asia, including China, was “lower production costs” followed by “new market opportunities” (see Table 8.3). In particular, China’s attractiveness in terms of its lower produc-

Table 8.3 Why South Korean Forms Choose to Invest Abroad Motives New Market Opportunities Lower Production Costs Easier Access to Inputs Increased Exports Technology Transfer Countering Trade Blocks Investment-attracting Policy Others Total

North America

Europe

China

Asia

Latin America

Total

39.8 11.4 9.7 11.4 10.2 9.1 4.0 4.4

48.7 — 5.4 10.8 10.8 21.6 2.7 0.0

36.2 42.8 5.6 4.9 0.9 3.1 3.8 2.7

33.0 36.7 7.5 5.9 0.5 4.2 6.4 5.8

25.3 32.4 8.8 2.9 2.9 14.7 11.8 1.2

36.5 31.2 7.2 6.9 4.5 5.9 4.3 3.5

100.0

100.0

100.0

100.0

100.0

100.0

Source: Seo and Lee, “Haeoe chikcho˘pt’uja u˘i kyo˘ngjejo˘k hyokwa punso˘k” [Analyzing Economic Effects of FDI], 31.

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tion costs combined with its new market opportunities clearly showed why China has become the largest destination for South Korean OFDI as well as for many other nations’ OFDI. Findings in Tables 8.1, 8.2, and 8.3 show several important characteristics about South Korean OFDI. First, since the mid-1990s, the destination of South Korean OFDI has diversified and an increasing share has headed toward China. Second, South Korean OFDI is concentrated in manufacturing industries because the cost of production factors—in particular, labor— in South Korea has increased over time. Third, South Korean OFDI in developing countries such as China is consistent with motives related to resource-seeking (or vertical) investment, which explains that a key determinant of OFDI is lower-cost inputs such as labor. Fourth, South Korean OFDI to developed nations in North America and Europe tend to seek new markets, a pattern that is consistent with horizontal investments. In the following section, we shall examine investments in North Korea within this broader context of South Korean OFDI. South Korean OFDI to North Korea Inter-Korean transactions13 have expanded since 1988 in both quantity and quality. The volume of inter-Korean transactions has increased more than ten times from US$18.7 million in 1988 to more than US$1 billion in 2005. The nature of the transactions has also changed, from small investments by private companies to large-scale projects involving the two Korean governments. Most notable among these projects are the railroad-connection project, the Kaesong Industrial Complex, and the Mt. Kumgang tourism project. The South Korean government expects that inter-Korean economic cooperation will not only create business opportunities for involved companies, but will also bring about important economic and political changes within North Korea. Thus, the South Korean government has been very aggressive in promoting OFDI to North Korea since the 2000 interKorean summit and uses the following arguments to persuade South Korean businesses of the soundness of such investments. First, South Korean firms can reap locational advantages by investing in North Korea because South Korea’s industrial structure has been shifting from labor-intensive manufacturing to high-technology manufacturing and service-oriented industries. And because many labor-intensive SMEs in South Korea face increasing competition from China and other developing countries whose labor costs are lower, these SMEs would benefit from using North Korea’s even lower labor costs and even lower transportation costs. Second, North Korea’s strategic location can help South Korea build energy and transportation networks in Northeast Asia. South Korea has

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179

been pushing for the construction of infrastructure networks in the region, including in China’s northeastern provinces and the Russian Far East. Such investment projects are expected to create business opportunities for firms in this region elsewhere and to increase regional integration in Northeast Asia. Indeed, North Korea is in a strategic location to connect to China and Russia. The North can help the South reduce the costs of building the network and also bring economic benefits to the North itself through infrastructure projects. However, geopolitical relations between the two Koreas continue to plague such economic cooperation projects. South Korean businesses with investments in North Korea noted in a survey that their businesses suffered when there was a political deadlock between the two Koreas.14 When military security issues such as the nuclear problem in North Korea become acute, projects are often subject to abrupt cancellation or indefinite delay. For example, the May 2007 test run that reconnected the two railways on the North-South border was realized only after a series of cancellations due largely to the North Korean military’s reluctance to open the border. Nevertheless, it appears that investments in North Korea are becoming less subject to the whims of geopolitical factors, as we will show in our discussion on the Kaesong Industrial Complex.

HISTORICAL OVERVIEW OF INTER-KOREAN ECONOMIC RELATIONS In an effort to illuminate the changing nature of inter-Korean relations, and particularly the environment in which investments from South Korea find their way to North Korea, we provide a historical overview of inter-Korean relations in terms of North Korea’s openness to South Korea and to the rest of the world. An overview of inter-Korean economic relations will give us a comparative perspective for understanding the relative significance of the Kaesong Industrial Complex, which will be discussed later. Associated with changes in the political relations between the two Koreas, the nature of inter-Korean economic relations has transformed over time as follows: phase one, North Korea’s limited liberalization (1971–1987); phase two, trade initiation with South Korea (1988–1995); phase three, limited inter-Korean trade and economic cooperation (1996–99); and phase four, active promotion of inter-Korean trade and investment (2000–present). North Korea’s Limited Liberalization, 1971–1987 IFDI in North Korea began in the early 1970s, when North Korea sought advanced technology and capital from abroad owing to severe economic hardship in North Korea after the Soviet Union, China, and Soviet bloc

180

ENGAGEMENT WITH NORTH KOREA

nations had reduced their financial subsidies to North Korea beginning in the mid-1960s. North Korea launched a six-year plan to attract FDI and to enhance trade from 1971 to 1976, with a goal to expand trade with the West and Japan and to introduce capital goods such as machines and equipment into North Korea. Although North Korea’s trade with capitalist countries comprised only 3.7 percent of its total trade in 1960, the number started to grow significantly in the 1970s, expanding to 53.6 percent of total trade by 1975.15 North Korea enacted the Joint Venture Law in 1984 in order to attract FDI. Joint venture was seen as an alternative means to obtain foreign capital because the Soviet bloc countries, as well as capitalist countries, were not providing North Korea with loans. This change was significant regarding North Korean policy toward “private businesses,” since it was the first official acknowledgment of domestic private business entities. The North Korean government hoped that the explicit provision for an independent profitmanagement system would enable joint venture companies to boost FDI. However, this law brought no South Korean investments to North Korea, as noted above. FDI was largely from the General Association of Korean Residents in Japan, which was supportive of the North Korean government vis-à-vis another Korean association affiliated with the South Korean government. In contrast, South Korean law strictly prohibited companies from investing in North Korea. Thus, South Korean companies were unable to invest in the North even after the enactment of the Joint Venture Law in 1984. Inter-Korean economic cooperation was first presented by the former South Korean president Chun Doo Hwan in 1984. President Chun proposed that the North begin trade and economic cooperation with the South, and he expressed his willingness to offer the North free technology and goods that could help improve the lives of North Koreans.16 Seoul proposed to Pyongyang that a permanent body be set up to deal with matters related to inter-Korean trade and economic cooperation and that the two countries hold inter-Korean economic talks. North Korea responded positively to the proposal, and five rounds of South-North economic talks have taken place in Panmunjom since 1984. However, in January 1986, the North Korean delegation unilaterally announced its decision to postpone the sixth round of talks indefinitely, citing that the ROK-U.S. joint military exercise, Team Spirit, was underway. As a result, the bilateral economic talks came to a stop, and inter-Korean economic cooperation did not progress until 1988. Trade Initiation with South Korea, 1988–1995 Inter-Korean economic cooperation officially began with the South Korean government’s July 7 Declaration in 1988. In this declaration, the South Kore-

BUSINESS ADVANCES TO NORTH KOREA

181

an government proposed mutual exchanges, open trade, and South-North international cooperation in order to develop a joint national community in which the two Koreas could prosper. South Korea worked hard to improve relations between the two Koreas and took related legislative steps such as the Guidelines on Inter-Korean Exchange and Cooperation in 1988 and the Inter-Korean Exchange and Cooperation Laws in 1990. In response, North Korea created a special economic zone in the Rajin-Sonbong area in December 1991, and drafted a joint development plan with the United Nations Development Program (UNDP) in May 1992 regarding the Tumen River region in North Korea. Although the Korean Peninsula during this time was at the center of a nuclear crisis due primarily to the North’s withdrawal from the Nuclear Non-Proliferation Treaty in 1993, inter-Korean trade increased significantly. The total amount of trade rose from US$18.7 million in 1989 to US$276 million in 1995. As noted above, the relations between the two Koreas had begun to show signs of maturity insofar as noneconomic factors appeared to have a smaller effect on inter-Korean economic relations than in the past. This pattern is significantly different from that of phase one. Another important achievement during this period was the expansion of commission-based processing trade (CBPT) that began in 1992. In the inter-Korean context, this form of trade involves the following steps: (1) The South Korean firms supply North Korea with raw or intermediate materials for processing or with industrial components for assembly or manufacturing; (2) The North Korean partners produce the goods according to the specifications and designs given by the South Korean firms; (3) The finished products are turned over to the South Korean firms; and (4) The North Koreans receive fees for their services.17 Table 8.4 shows that the share of CBPT in total inter-Korean trade increased rapidly from 0.5 percent in 1992 to 16.6 percent in 1995. Since the late 1990s, it has increased to about half of the total trade. Limited Inter-Korean Trade and Economic Cooperation, 1996–99 The late 1990s were a difficult period for the North Korean economy. The dissolution of the Soviet Union in the early 1990s presented the most critical shock to the North Korean economy. Catastrophic floods in July and August of 1995, and the ensuing famine between 1996 and 1998, exacerbated North Korean economic woes.18 The South Korean economy was also in trouble during this period owing to the Asian financial crisis, which lasted from 1997 to 1999. As a result of economic stagnation in the two Koreas, the volume of inter-Korean trade and the levels of other economic cooperation fell significantly. Table 8.4 shows that the total amount of commercial transactions between the North and the South decreased significantly from

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ENGAGEMENT WITH NORTH KOREA

Table 8.4 Inter-Korean Trade and Commission-based Processing Trade, 1989–2006 (thousand USD; %) From North to South

From South to North

Total

Year

Total Trade(a)

CBPT(b)

Total Trade

CBPT

Total Trade

CBPT(c)

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

18,655 12,278 105,719 162,863 178,167 176,298 222,855 182,400 190,281 92,264 121,482 150,517 173,476 270,189 289,082 257,863 320,142 441,339

— — — 638 2,985 14,321 21,174 36,238 42,894 41,371 53,736 71,966 72,579 102,789 111,639 107,746 131,226 159,387

69 1,188 5,547 10,562 8,425 18,249 53,440 55,384 60,020 51,531 67,553 89,202 62,837 72,770 119,597 89,421 99,365 115,749

— — — 200 4,023 11,343 24,718 38,164 36,175 29,617 45,883 57,224 52,345 68,388 73,370 68,213 78,503 93,571

18,724 13,466 111,266 173,425 186,592 194,547 276,295 237,784 250,301 143,689 189,035 239,719 236,313 342,959 408,679 347,284 419,507 557,088

— — — 838 (0.5) 7,008 (3.8) 25,664 (13.2) 45,892 (16.6) 74,402 (31.3) 79,069 (49.4) 70,988 (52.7) 99,619 (53.9) 129,190 (53.9) 124,924 (52.9) 171,177 (49.9) 185,009 (45.3) 175,959 (50.7) 209,729 (50.0) 252,958 (45.4)

Note: (a) These numbers include only commercial transactions between the South and the North and exclude aid or other types of non-commercial transactions. (b) These numbers exclude products of the Kaesong Industrial Complex. (c) The regular-font numerals in parentheses represent the share of CBPT in the total trade volume. Source: Korea International Trade Association, “Inter-Korea Economic Cooperation,” http:// www.kita.net.

US$250 million in 1997 to US$144 million in 1998, but recovered by a relatively modest amount to US$189 million in 1999. In 1998, South Korea’s Kim Dae Jung administration introduced the Sunshine policy to further engage the South with North Korea. In 1998 and 1999, the Kim administration put in place various support mechanisms including “Measures for Promotion of Inter-Korean Economic Cooperation” and “Guidelines to Raise the Inter-Korean Cooperation Fund in Favor of Mutual Economic Cooperation.”19 These measures helped simplify the procedures for investments in North Korea and helped increase investments in many different fields.20

BUSINESS ADVANCES TO NORTH KOREA

183

Active Promotion of Inter-Korean Trade and Investment, 2000–Present Inter-Korean investments grew significantly thanks to the high priority established at the 2000 inter-Korean summit for the expansion of economic cooperation. Of many, the efforts made by the two Korean governments were: institutionalization of vice minister–level meetings to oversee and manage economic cooperation; high-profile projects such as rail and road connections across the demilitarized zone (DMZ); negotiation of four major agreements to improve the North’s investment environment for South Korean companies; and exchanges of visits among experts. The most significant improvement from the legal perspective was the adoption of four major agreements on inter-Korean economic cooperation (hereafter, the Four Economic Agreements): the Agreement on Investment Protection between the South and the North, the Agreement on Clearing Settlements between the South and the North, the Agreement on the Prevention of Double Taxation of Income between the South and the North, and the Agreement on Procedures for the Resolution of Commercial Disputes between the South and the North. These agreements came into effect on August 20, 2003.21 The adoption of the Four Economic Agreements is significant because it represented a new institutional framework for inter-Korean economic cooperation, a framework that the two Koreas agreed upon through a consultative process. In addition, North Korea has continued to issue a series of detailed provisions necessary for attracting additional foreign investment. On March 27, 2002, North Korea’s premier Hong Song Nam made an important announcement at the Supreme People’s Assembly, stating that North Korea needed to “improve trade and economic cooperation and widely conduct joint ventures and collaboration with different countries and international organizations.”22 This statement could be interpreted as the North’s push toward significant economic reforms and improvements that would attract foreign investment. North Korea also introduced measures at the beginning of July 2002, including a substantial increase in both prices and wages, a shift in the price-fixing mechanism, changes in the distribution system, decentralization of national planning, an increase in the autonomy of enterprise management, an opening of the distribution market for production, and reform of the social security system.23 Owing to significant changes in the two Koreas, including the South’s Sunshine policy and the North’s economic adjustment measures, interKorean economic cooperation has improved significantly. The volume of inter-Korean transactions (including both commercial transactions and noncommercial transactions) has increased continuously since the 2000 summit, and surpassed US$1 billion in 2005 for the first time and reached US$1.3

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ENGAGEMENT WITH NORTH KOREA

billion in 2006. What is notable is that the commission-based processing trade also reached its highest level in 2006, with US$252 million, or a 20 percent increase from the previous year (see Table 8.4). The number of South Korean firms involved in the commission-based processing trade was only four in 1992, but increased dramatically to 123 in 2006.24 The scope of items manufactured under this form of trade has broadened: from textiles and shoes to color TV sets, automobile wiring, and computer monitors and motherboards. In terms of investment, private South Korean firms’ investment in the North has also increased during this period. As of December 2005, 113 South Korean companies received government approval to undertake direct investments in North Korea, and eighty-five business projects received approval from the government.25 Ongoing investment projects in areas such as automobile plant development, pharmaceuticals, spring water, software development, and agricultural cooperation saw some progress, as well. For example, a South Korean pharmaceutical manufacturer, Green Cross Corporation, established a factory in North Korea in 2000 to produce medicine for blood-clotting disorders and has been manufacturing products there since 2001. Pyeonghwa Motors built a factory in Nampo in 2001 and began automobile assembly manufacturing in April 2002. This company currently manufactures six types of cars, including SUVs, pickup trucks, sedans, and minibuses, and it sold about seven hundred vehicles in 2006.26 Inter-Korean economic relations deepened during this phase. Large-scale government projects began with the project for an inter-Korean railroad connection and with the flood damage prevention project along the Imjin River. The agreement to proceed with the opening of the Kaesong Industrial Complex project’s pilot phase and the Mt. Kumgang tourism project also helped accelerate inter-Korean economic cooperation during this phase. Table 8.5 shows another interesting feature that has changed since 2005. While trade was the most important and largest form of economic cooperation before 2005, the introduction of the Kaesong Industrial Complex in 2005 has changed the dynamic of inter-Korean economic relations from aid and trade to direct investment. Figures in Table 8.5 suggest that there has been a deepening of economic interdependence between the two Koreas. Between October 2 and 4, 2007, the historic second inter-Korean summit occurred in Pyongyang. Although President Roh Moo Hyun was criticized for taking up such a major initiative with only a few months left in his presidency, the summit resulted in the signing of an agreement that could ultimately bring about significant changes on the Korean Peninsula. Signed by Roh and the North Korean leader Kim Jong Il, the agreement’s points were announced to the public on October 4, 2007, and include the following eight points:27

Commercial

Total

Total

119

Sub-total

— 225

Light-water Reactor Project

KEDO Heavy Oil

2,551

398

—

Social-cultural Cooperation

173

2,153

24

General Investment

Aid

95

—

Kaesong Industrial Complex

Mt. Kumgang Tourism

2,034

532

1,502

Sub-total

Commission-based Processing Trade

General Trade

1989– 2000

402

148

3

34

—

111

254

18

10

8

—

236

125

111

2001

639

274

2

59

—

213

365

23

11

12

—

342

171

171

2002

724

295

—

24

—

271

429

21

5

16

—

408

185

223

2003

Source: Korea International Trade Association, “Inter-Korea Economic Cooperation,” http://www.kita.net.

TOTAL

Noncommercial

Investment

Trade

Table 8.5 Overall Statistics of Inter-Korean Economic Transactions

697

260

—

0.5

0.8

258

437

90

6

42

42

347

176

171

2004

1,056

366.1

—

0.4

0.7

365

690

270

6

87

177

420

210

210

2005

—

—

2

418

929

372

16

57

299

557

253

304

2006

1,345

4126

(million USD)

BUSINESS ADVANCES TO NORTH KOREA 185

186

ENGAGEMENT WITH NORTH KOREA The South and the North are to actively implement the June 15 Declaration of 2000. The South and the North are to work for mutual respect and trust in order to overcome differences in ideology and systems. The South and the North are to ease military tensions and to resolve disputes through dialogue and negotiations. The two sides are to set up a joint fishing area in the West Sea to avoid accidental armed conflict. The two sides are to hold defense ministerial talks in November in Pyongyang to discuss ways of supporting inter-Korean economic cooperation and of easing tension. The South and the North agree on the need to end the current armistice and to establish permanent peace. The two sides are to push for a declaration for ending the Korean War in cooperation with neighboring nations. The South and the North are to make joint efforts for the smooth implementation of the September 19 and February 13 six-nation nuclear agreements. The South and the North are to expand economic cooperation for balanced development and co-prosperity. The two sides are to create a special economic zone and to jointly develop the estuary of the Han River. The South and the North are to cooperate in the areas of history, language, education, technology, culture, sports, and social sectors. The two sides are to open a direct air route between Seoul and Mount Paekdu to allow South Koreans to visit the mountain in North Korea. The South and the North are to actively push for humanitarian cooperation and for expansion of the reunions of separated families. The South and the North are to strengthen cooperation for national interests on the international stage and for the benefit of Korean residents abroad.

Compared to the June 2000 inter-Korean summit, the economiccooperation projects were discussed in greater detail. Going beyond Mt. Kumgang and Kaesong, the projects concern many more regions in North Korea than did the June 2000 inter-Korean summit. Of course, both sides of the border face many remaining hurdles, including whether North Korea will follow through with the agreement, whether South Korea’s National Assembly will approve various measures included in the agreement, and whether the other members of the Six-Party Talks will support the agreement. Nevertheless, the agreement is a welcome sign for the deepening of inter-Korean economic relations.

BUSINESS ADVANCES TO NORTH KOREA

187

However, in spite of the initial excitement over the October 4, 2007, inter-Korean summit, the agreement is faced with a stalemate as of Spring 2009. First, President Lee Myung Bak has pursued a more pragmatic approach to inter-Korean relations since his inauguration in February 2008. The Lee administration has asked that North Korea come back to the negotiating table to re-discuss some issues concerning the lack of Northern compliance with other matters in inter-Korean relations, while North Korea has insisted that the South comply with all the agreements laid out in the October 2007 agreement. Second, the other members of the Six-Party Talks are conspicuously silent about the agreement since they perceive it more as an inter-Korean matter rather than an issue to be dealt with in the Six-Party Talks framework. Finally, the agreement was rich with grand ideas of cooperation and rather thin with details. Given the stalemate in inter-Korean relations since 2008, there has been no working-level mechanism to further develop the details of the agreement.

CASE STUDIES OF MAJOR INTER-KOREAN ECONOMIC COOPERATION PROJECTS Three major inter-Korean economic cooperation projects led by the South Korean government are infrastructure projects, the Mt. Kumgang Tourism Project and the Kaesong Industrial Complex. This section examines South Korean OFDI to North Korea and does so with an in-depth focus on the Kaesong Industrial Complex in particular. Infrastructure Projects Large infrastructure projects led by the South Korean government include the Kyongui and Donghae (East Coast) rail and highway projects and the Imjin River flood prevention project. The Kyongui and Donghae rail and highway projects have made steady progress. South Korea and North Korea held a ceremony in June 2003 to connect the railroad at the demilitarized zone. At the meeting of the 7th South-North Economic Cooperation Promotion Committee in November 2003, the two sides agreed that the South would provide the North with materials and equipment needed for the construction while the North promised transparency in its use of materials and equipment.28 On May 18, 2007, the two Koreas jointly conducted the first trial run of the train service along the newly built inter-Korean railroads (Kyongui and Donghae Lines), and they hoped to open the railroads and operate trains on a regular basis in the near future. South Korea will benefit from the cross-boarder railways because they will help reduce the cost of inter-Korean

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logistics and help boost both the operations at the Kaesong Industrial Complex and the tourism business at Mt. Kumgang. The Imjin Project to prevent river flooding is currently at a standstill pending further negotiations for a mutual agreement on issues such as the execution of joint investigations, the installation of flood-warning equipment, and trees for forestation. Mt. Kumgang Tourism Project One of the most publicized investments to date has been Hyundai Asan’s Mt. Kumgang Tourism Project. In 1998, North Korea and Hyundai Asan reached an agreement to establish the Mt. Kumgang Tourist Venture, Hyundai Asan being affiliated with South Korea’s largest business chaebol at the time—the Hyundai group. Although Hyundai Asan ambitiously announced this project with the hope of attracting both South Korean and foreign tourists, the tour soon faced possible suspension owing to the North’s nuclear crisis and Hyundai Asan’s financial troubles. In response, the Korea Tourism Organization (KTO) announced that it would participate in the Mt. Kumgang Tourism Project with Hyundai Asan. Since the KTO agreed to participate in the project, the number of tourists has continuously increased; and as of December 2006, the total number of tourists was more than 1.3 million (see Figure 8.2). This project appeared to extend more than just economic benefits to North Korea. According to a survey conducted by a South Korean survey company, more than 77.5 percent of South Koreans who visited Mt. Kumgang said that they had begun to have a more positive understanding of North Korea after their visit to the isolated country and their interactions with North Koreans.29 It would seem that these various projects tend to reduce tensions on the Korean Peninsula and likely help improve the investment environment in the North. Kaesong Industrial Complex Project The Kaesong Industrial Complex generated the greatest interest among all the inter-Korean projects because it was regarded as something that could not only advance inter-Korean economic cooperation but also accelerate North Korea’s economic reform from within. Background and Current Status On August 10, 2000, Hyundai Asan announced that, with the North’s consent, the firm had selected Kaesong for development as an industrial complex and that the North Korean government had designated the area as a special

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economic district. Accordingly, Hyundai Asan has planned and developed a section of the city of Kaesong, which is only seventy kilometers away from Seoul and 160 kilometers from Pyongyang, as an industrial complex encompassing sixty-six million square meters.30 In view of the geopolitical significance of Kaesong, which is located just north of the border between the two Koreas, many South Koreans hoped that the Kaesong Industrial Complex would help to relieve the tensions on the Korean Peninsula. The project originally began as part of a private company’s investment venture, but later, the two governments came to be involved. Although the North Korean authorities designated Hyundai Asan as a developer of the complex with comprehensive rights to the project, financial difficulties at Hyundai Asan forced the firm to hand over some of its rights to the Korea Land Corporation (KLC), which is a South Korean public corporation. The South Korean government, Hyundai Asan, and the KLC have been jointly working on the project. Hyundai Asan has been in charge of executing construction, and the KLC has been in charge of planning, sale of lots, and management. The South Korean government has not only indirectly involved itself in the project through the KLC but has also boosted the project by proclaiming it a symbolic feat. The industrial complex takes up an area of twenty-six million square meters, with the remaining forty million square meters devoted to living quarters and tourist attractions. As shown in Table 8.6, the industrial complex has been under construction with a three-stage development plan: (1) 3.3 million square meters for labor-intensive light industries such as sewing, footwear, and bags; (2) 5 million square meters for technology-intensive industries such as machinery and electricity; and (3) 11.6 million square meters for advanced technology or state-of-the-art industries such as information technology and biotechnology (BT). At the end of the third stage, the complex is expected to have as many as 1,500 South Korean firms employing 350,000 North Korean workers. In June 2004, the model complex was established as a pilot project to test not only the possibility of success for the whole complex but the legal and the institutional environment, as well. For the model complex, the South Korean government selected fifteen companies that had sound financial bases and extensive experience working in labor-intensive industries. By the end of 2006, the fifteen companies that had begun operations in Kaesong employed eleven thousand North Korean workers.31 Twenty additional South Korean companies have purchased lots for the first stage of the industrial complex, and six of them began operations. Thus, as of August 2007, a total of twenty-three companies (including the Korea Land Corporation and Hyundai Asan’s Kaesong Head Office) were operating in the complex,32 with a total of 17,782 North Korean workers.

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Table 8.6 The Three Stages of the Plans for the Kaesong Industrial Complex Stage II 2006–2009

Stage III 2008–2012

Year

Stage I (includes pilot) 2002–2007

Total Land at Completion

Industrial zone: 3.3 km2

Industrial zone: 5 km2 Supporting zone(a): 3.3 km2

Industrial zone: 11.6 km2 Supporting zone: 6.6 km2

Industries

Labor-intensive industries

Technology-intensive industries

State-of-the art industries

300

800

1,500

100,000

200,000

350,000

Total Number of South Korean Firms at Completion Total Number of North Korean Workers at Completion

Note: (a) Supporting zones include residential facilities, commercial establishments (hotels, restaurants, offices, conference rooms, etc.), and tourist facilities (golf courses, theme parks, etc.). Source: Kaesong Industrial District Management Committee, http://www.kidmac.com.

South Korean firms employed 15,158 North Korean workers, while another 2,025 were engaged in construction of the complex, and 599 worked in the management of it.33 Goods that have been produced at the Kaesong Industrial Complex since 2004 include textiles, chemical products, metal and machinery, and electronic products. Table 8.7 shows production at the Kaesong Industrial Complex from 2005 to 2007. Total production in the complex has increased substantially, being recorded at US$108 million in 2007 (January–August). In terms of commodities, textiles have remained by far the most important product in the complex, accounting for more than 46 percent of the total value of production in 2007. The share of electronic products has steadily increased (from 7.4 percent in 2005 to 20.5 percent in 2007) while the share of metal and machinery production has declined (from 35.2 percent in 2005 to 21.6 percent in 2007). There are several important characteristics of the Kaesong Industrial Complex project. First, the North Korean regime appears to consider the Kaesong Industrial Complex a strategic means of attaining economic development rather than just a means of obtaining foreign currency. Considering

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BUSINESS ADVANCES TO NORTH KOREA Table 8.7 Production in the Kaesong Industrial Complex (thousand USD; %) Products/Year Textiles Chemical Products Metal & Machinery Electronic Products Total

2005

2006

2007(a)

6,780 (45.5) 1,768 (11.9) 5,250 (35.2) 1,108 (7.4)

27,793 (37.7) 10,900 (14.8) 20,853 (28.2) 14,261 (19.3)

50,024 (46.2) 12,518 (11.6) 23,385 (21.6) 22,177 (20.5)

14,906 (100.0)

73,807 (100.0)

108,104 (100.0)

Note: (a) Data from January to August, 2007. Source: Ministry of Unification, “Key Statistics for the Kaesong Industrial Complex,” http://www. unikorea.go.kr.

that the Kaesong Industrial Complex has provided the North with industrial infrastructure, which is the foundation for obtaining economic development, we argue that the North’s intention for agreeing to the Kaesong project is in line more with long-term economic development that rests on forward and backward linkages than with service-oriented ones (for instance, the Mt. Kumgang project) that rest on relatively few linkages to the rest with the economy. Policymakers in South Korea also hoped that economic stability resulting from successful economic development projects such as the one at Kaesong will eventually contribute toward reducing security tensions on the Korean Peninsula. Second, the Kaesong Industrial Complex gives South Korean companies, which experience difficulty with the South’s rising production costs, a new business opportunity. North Korea’s relatively low production costs and new market opportunities could attract South Korean businesses that were otherwise destined to go to China and Russia. Thus, the Kaesong Industrial Complex has been presented by the South Korean government as a model for inter-Korean economic cooperation that has a win-win outcome. Last, the South Korean government hopes that, in North Korea, the Kaesong Industrial Complex will help bring about changes going beyond economic improvements. In fact, the level of the North’s economic reliance on South Korea has increased since the Kaesong Industrial Complex got underway. And since 2002, South Korea has been the second-largest trading partner for North Korea, following China. In the North, the growing South Korean OFDI business ventures, exemplified by the Kaesong Industrial Complex, are expected to eventually encourage North Korea to reform its economic system and to open its doors to the outside world. Owing to the above problems, the Kaesong Industrial Complex still faces many obstacles such as tensions arising from security threats and difficulties in transportation, communications, and customs procedures, as well

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difficulties in convincing more South Korean firms to invest in the North. The October 4, 2007, Agreement between the two Koreas will, hopefully, reduce the security tensions on the Korean Peninsula, bring about a greater number of economic cooperation projects in North Korea, and further improve the conditions in Kaesong in particular. However, as briefly noted above, North Korea has shown an antagonistic attitude toward the Lee administration based on the belief that the Lee administration will be much stricter toward the North compared to the previous two South Korean administrations. Nevertheless, the North has shown its willingness to abandon its nuclear weapons to the international society by recently handing over a huge amount of records of its nuclear activities to the U.S. State Department in May 2008. In return, once the documents are reviewed and believed to hold comprehensive records of the North’s nuclear activity, the United States has promised to provide food aid and ease/stop various sanctions toward the North. Although it is unclear, there is cautious optimism that this will lead to improved relations with South Korea as well. Business Environment The Kaesong Industrial Complex has become attractive to South Korean businesses because of its location-specific advantages, including geographical proximity, easy transport of goods and human resources, relatively cheap labor, common language, and cultural similarity. As shown in Table 8.8, wage rates and tax rates in Kaesong are set at competitive levels relative to those in China, which has been the largest destination for South Korea’s OFDI. The minimum monthly wage for North Korean workers is US$57.50, which is far less than that in China, and weekly working hours are forty-eight, which are longer than the forty-four in China. In addition, the workers in the Kaesong Industrial Complex have shown high productivity. Most South Korean companies that have commission-based processing trade with North Korea agree that the high quality of labor is the result of North Korea’s compulsory high school education system and the common Korean language, and these factors appear to have contributed significantly to the high productivity of the North Korean labor force.34 Second, the corporate income tax rate in the Kaesong Industrial Complex is also more favorable than that of China. More specifically, companies that operate in the complex pay an income tax ranging from 10 to 14 percent at the end of each fiscal year; this figure is lower than the 15 percent levied in China. In addition, companies that remain in non-service areas for more than fifteen years (1) will be fully exempted from corporate income taxes for five years after the companies begin to make a profit, and

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Table 8.8 Comparative Factor Prices in Kaesong, China, and South Korea Unit

Kaesong

China(a)

South Korea

Monthly Wage (Minimum)

USD

57.5

100–200

423

Working Hours per Week

hrs

48

44

44

Corporate Income-tax Rate

%

10–14

15

23–28

USD

538.0

179.3

1,461.9

Land Price per 3.3 m2 (1 pyong)

Note: (a) Dandong in Liaoning Province. Source: Suk-sam, Park, “Kaesong kongdan ko˘nso˘l ui kyo˘ngjejo˘k hyokwa punso˘k” [An Analysis of the Economic Impact of Establishing the Kaesong Industrial Complex], Finance and Economic Research Study 183 (Seoul: Bank of Korea, 2004).

(2) will receive a 50 percent reduction for the next three years.35 In China, companies (1) are fully exempted for two years after they start making profits and (2) receive a 50 percent reduction for the next three years, a pattern that lends the advantage to Kaesong. However, the cost of real estate at the complex is US$538 per square meter, a rate that is higher than US$179 in Dandong City in China’s Liaoning Province. Economic Effects The Bank of Korea estimated the economic effects of the Kaesong Industrial Complex for the two Koreas.36 According to the estimates, the annual output from the Kaesong Industrial Complex will increase from 0.4 percent of South Korea’s 2003 GNI in four years to 3.1 percent in seventeen years. In particular, the complex will help South Korean SMEs cut costs drastically, boosting profits by 200 to 700 percent, depending on the type of industry. For North Korea, its contribution is expected to be 0.3 percent of North Korea’s 2003 GNI in four years and as much as 12.4 percent of North Korea’s 2003 GNI in seventeen years. These estimates are based on the assumption that nineteen thousand South Korean companies will move to the Kaesong Industrial Complex in eight years, when all three stages of the project are completed. Therefore, it is essential to bring enough South Korean businesses to the complex in order to materialize the economic benefits for the two Koreas.

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CONCLUSION We have examined inter-Korean economic cooperation from the perspective of OFDI. We started our discussion with Dunning’s FDI perspective, focusing on location-specific advantages, and we examined the general pattern of South Korea’s OFDI, which revealed several important characteristics: (1) South Korea’s OFDI has expanded rapidly throughout the 1990s and 2000s; (2) An increasing share has headed toward China, which has the advantage of low production costs and new market opportunities; and (3) The majority of South Korea’s OFDI has concentrated in the manufacturing sector, a scenario implying that South Korea’s OFDI in developing countries is consistent with motives related to resource-seeking investment. Inter-Korean economic cooperation, particularly the South Korean OFDI business ventures in the North, appears to pursue the location-specific advantages in general and to follow the resource-seeking investment pattern in particular. Compared to China and other developing countries, North Korea has the advantage of lower labor costs, geographical proximity, common language, and cultural similarity. These factors have attracted South Korean businesses to the Kaesong Industrial Complex in particular. On the other hand, inter-Korean confrontation and the two North Korean nuclear crises have created new tensions and exacerbated old ones on the Korean Peninsula and have often led to disruptions in economic cooperation projects. It is evident that the nuclear standoff and other political issues remain critical obstacles in North Korean OFDI. Although we began this chapter with the premise that long-term sustainability of OFDI to North Korea has to rest on more than noneconomic incentives, political relations between the two Koreas continue to matter in OFDI. However, we have witnessed some changes in this trend over time. As inter-Korean economic projects of greater substance get underway, inter-Korean economic relations deepen; moreover, we have seen a movement toward a greater separation of economic issues from geopolitical issues over time. Thus, our study has shown that economic disruptions were reduced compared to the past even when there were tensions on the Korean Peninsula. This is a welcome sign that gives greater stability in the business environment in North Korea, although there need to be continued efforts to reduce tension and improve various institutional setups in North Korea in order to sustain OFDI into North Korea. Although inter-Korean relations appear to suffer in the short term when there is news about nuclear threats and other crises, the relationship has matured and shows steady progress toward a deepening of inter-Korean economic relations. This can be seen by recent events surrounding the two Koreas and the United States. For example, North Korea sent a huge amount of records on its nuclear activity to the United States in May 2008,

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and thus has kept its promise that it will work towards a nuclear-free Korean Peninsula. This was carried out in spite of its recent public remarks that showed an antagonistic attitude toward the newly inaugurated South Korean administration of President Lee Myung Bak. Although the inter-Korean relations and the Six-Party Talks are both faced with a stalemate as of Spring 2009, there is cautious optimism that the relationships between South and North Korea and between the United States and North Korea appear to be progressing forward and becoming more mature in the long run.

NOTES The authors would like to gratefully recognize the research assistance provided by Eun Kyung Byon. 1. Korea Export-Import Bank, Overseas Direct Investment Statistics Yearbook (Seoul: Korea EXIM Bank, 2006). 2. The Lee administration has proclaimed “Vision 3000” as its main policy toward the North, which is designed to provide conditional economic assistance to the North in the next ten years with the goal of increasing the GNP per capita of the North to US$3,000. The South will provide both funds and technology to help attain this goal, if the North decides to relinquish its nuclear weapons. The South Korean government is ready to help so that North Korea will improve its economy, and in turn help North Korea reform and open its economy. Although the North Korean authorities immediately rejected Lee’s Vision 3000 policy, they are not prohibiting any capital inflow from the South. Furthermore, the North has claimed that it provided all the documents on its nuclear activities to the United States in May 2008. This is yet another sign that the North is in step with the South and the United States on its dismantlement of its nuclear capabilities. 3. John Dunning, Multinational Enterprises and the Global Economy (New York: Addison-Wesley, 1993). 4. Seo Young Kyung and Lee Han Nyung, “Haeoe chikcho˘pt’uja u˘i kyo˘ngjejo˘k hyokwa punso˘k” (Analyzing Economic Effects of FDI), Monthly Bulletin (Seoul: Bank of Korea, October 2002), 23–49. 5. Yuko Kinoshita and Nauro F. Campos, “The Location Determinants of Foreign Direct Investment in Transition Economies,” in Managing Development and Transition in a Globalizing World (II): Corporate Behavior, ISS Research Series No. 13, ed. J. Nakagawa (Tokyo: Institute of Social Science, University of Tokyo, 2004), 4. 6. See James Markusen and Anthony Venables, “Multinational Firms and the New Trade Theory,” Journal of International Economics 46 (1998): 209–34. 7. See Elhanan Helpman, “A Simple Theory of Trade with Multinational Corporations,” Journal of Political Economy 92 (1984): 451–71; and Elhanan Helpman and Paul Krugman, Market Structure and Foreign Trade (Cambridge: MIT Press, 1985). 8. Richard Caves, Multinational Enterprise and Economic Analysis (Cambridge and New York: Cambridge University Press, 1982). 9. Peter Nunnenkamp, “Foreign Direct Investment in Developing Countries: What Economists (Don’t) Know and What Policymakers Should (Not) Do!”

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Monographs on Investment and Competition Policy No. 11 (Jaipur, India: Centre for International Trade, Economics and Environment, 2003), 13. 10. Eun Mee Kim, “Globalization of the South Korean Chaebol,” in Korea’s Globalization, ed. Samuel S. Kim (New York: Cambridge University Press, 2000), 102–25. 11. Korea EXIM Bank, Overseas Direct Investment Statistics Yearbook (Seoul: Korea EXIM Bank, 2006). 12. Seo and Lee, “Haeoe chikcho˘pt’uja u˘i kyo˘ngjejo˘k hyokwa punso˘k” (Analyzing Economic Effects of FDI), 23–49. 13. The South Korean government broadly divides inter-Korean transactions into two groups: economic and noneconomic transactions. Economic transactions include two types of trade (general trade and commission-based processing trade) and three areas of investment (the Kaesong Industrial Complex, Mt. Kumgang Tourism, and general investment). Noneconomic transactions include aid, social and cultural cooperation, a light-water reactor project, and KEDO heavy oil. 14. The survey was conducted by the Trade Promotion Bureau, and InterKorean Trade Support Team of the Korea International Trade Association (KITA). Two hundred companies investing in North Korea responded to the survey. 15. Seung-Yul Oh, “The Current Framework of Inter-Korean Economic Cooperation and Its Prospects,” Asian Perspective 25, no. 2 (2001): 153–76. 16. Sung-wook Nam, “Theory and Practice: Kaesong and Inter-Korean Economic Cooperation,” East Asian Review 13, no. 1 (2001): 67–88. 17. Hoon Park, “Strategies for Inter-Korean Economic Cooperation: A Managerial Approach,” North Korean Review 1 (Fall 2005): 38–51. 18. Marcus Noland, “Political Economy of North Korea: Historical Background and Present Situation,” in A New International Engagement Framework for North Korea? Contending Perspectives, ed. Nicholas Eberstadt, Ahn Choon-yong, and Lee Young-sun (Washington, DC: Korea Economic Institute, 2004), 21–22. 19. The Guidelines set criteria for providing funds to small- and medium-sized companies and to stimulate inter-Korean economic exchanges and cooperation. 20. Oh, “Current Framework of Inter-Korean Economic Cooperation,” 153–76. 21. Hyundai Research Institute, HRI Weekly Briefs, August 4, 2003. 22. Sang-Hun Choe, “North Korea Open to More Ventures,” New York Times, March 27, 2002. 23. Ihk-pyo Hong, “A Shift toward Capitalism? Recent Economic Reforms in North Korea,” East Asian Review 14, no. 4 (2002): 93–106. 24. Inter-Korean Transaction Team, Trade Promotion Division, “Nampuk kyoyo˘k 2006nyo˘n p’yo˘ngka, 2007nyo˘n cho˘nmang mit aerosahang” (Evaluation on the Performance of Inter-Korean Economic Cooperation in 2006 and Its Status in 2007), Research Report (Seoul: Korea International Trade Association, February 2007), 2–3. 25. Ministry of Unification, “Wo˘lgan nampuk kyoryu hyo˘pryo˘k mit indojo˘k sao˘p tonghyang” (Monthly Report on Intra-Korean Exchange, Cooperation, and Humanitarian Projects) (Seoul: Ministry of Unification, August 2005). 26. Chosun Daily, August 2, 2007.

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27. “Korea accord’s eight points,” CNN.com, October 4, 2007. 28. KIEP, North Korea: Development Report 2003/04 (Seoul: Korea Institute for International Economic Policy, 2004), 225. 29. Research & Research, “K’u˘mgangsan kwankwangsao˘p ihu pukhan e taehan han’gungmin u˘i insik pyo˘nhwa” (Mt. Kumgang Tourism Project and Changes in South Korean Public Perception toward North Korea), October 2005, http:// w3.randr.co.kr/. 30. Hyundai Asan Corporation, “Kaesong Industrial Park,” brochure, 2006. 31. Ministry of Unification, “Key Statistics for the Kaesong Industrial Complex,” December 31, 2006, http://www.unikorea.go.kr. 32. Ministry of Unification, “Key Statistics for the Kaesong Industrial Complex,” August 30, 2007, http://www.unikorea.go.kr. 33. Ibid. 34. Eliot Syunghyun Jung, Youngsoo Kim, and Takayuki Kobayashi, “North Korea’s Special Economic Zones: Obstacles and Opportunities,” in Confrontation and Innovation on the Korean Peninsula, ed. Korea Economic Institute (Washington, DC: Korea Economic Institute, 2003), 52. 35. Bank of Korea, “Kaeso˘ng kongdan choso˘ng u˘i kyo˘ngjejo˘k hyokwa punso˘k” (An Analysis of the Economic Impact of Establishing the Kaesong Industrial Complex), Finance and Economic Research Study No. 183 (Seoul: Bank of Korea, 2004). 36. Ibid.

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NINE

FROM CHARITY TO PARTNERSHIP South Korean NGO Engagement with North Korea Edward P. Reed

Civil society played a major role in South Korea’s struggle for human rights and democracy in the 1970s and 1980s. In the 1990s the civil society movement, taking advantage of the space opened up by democratization, turned its focus primarily to addressing South Korea’s agenda of economic and social problems. Major movements for labor rights, women’s participation, welfare reform, and environmental protection emerged. It is only natural, then, that this vibrant movement has sought to play a role in addressing the problem of national partition. The broad sphere of South Korean civil society is composed of various actors, from single-issue campaigns, to more organized citizen movements, to formally established nongovernmental organizations (NGOs) with clear program objectives. The focus of this chapter is the group of South Korean NGOs that has sought to engage North Korea through humanitarian assistance.1 North Korea’s plea for humanitarian assistance, which first came in 1995, provided an opening for South Korean NGOs to become directly involved in South-North relations. Between 1995 and 1998, progressive NGOs and religious groups took the lead in pressing for emergency aid to the North at a time when the South Korean government was taking a more cautious and measured approach. With the launching of the Sunshine policy by President Kim Dae Jung (1998–2003), followed by the Peace and Prosperity Policy of President Roh Moo Hyun (2003–08), the role of civil

199

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society in South-North relations was recognized and actively promoted by the government.2 Over the past decade, South Korean civil society and humanitarian NGOs in particular, have constituted an important aspect of the South’s overall engagement initiative toward North Korea. Most of the South Korean humanitarian NGOs share the broad goals of the government’s engagement policy and the assumptions on which they are based. Though many receive partial funding from the government, the NGOs operate with a significant degree of independence regarding strategy and program implementation. Thus, it is valid to ask to what extent the NGOs make an independent contribution to an effective engagement policy with North Korea. This chapter describes the engagement strategy of the South Korean humanitarian aid NGOs and attempts to gauge the extent to which they have achieved their stated goals. The NGOs have aspired to reduce human suffering in the North, demonstrate the goodwill of the South Korean people, reduce hostility and build trust, and help create the basis for reconciliation between people in the North and South. Allowing for differences among the organizations and the need for following a learning curve, the South Korean NGOs, to a large extent, have achieved these goals. However, if the South Korean government continues to expand direct aid and economic cooperation with the North, the NGOs will face a new environment with problems of financial stability, project sustainability, absence of North Korean nongovernmental counterparts, and the need to define a distinctive role. If they successfully meet these challenges, the humanitarian NGOs will play a critical role in laying the basis for eventual reconciliation between the peoples of the North and South.

BACKGROUND OF NGO ENGAGEMENT North Korea’s 1995 appeal for aid was addressed directly to the government of South Korea, not to nongovernmental organizations. President Kim Young Sam (1993–98) responded with a huge donation of rice (150,000 metric tons), hoping to open a new era of cooperation. Instead, the outcome was deeper distrust and an abrupt end to official aid when the North Koreans forced the aid ship to raise the North Korean flag and detained a sailor for taking photos. This unfriendly reception by the North and other serious incidents over the next two years, including the landing of a North Korean mini-submarine on the South Korean coast in 1996, hardened the South’s position toward official humanitarian aid for the North.3 Nevertheless, this open request for aid represented a turning point in the attitude of many South Koreans toward the North and led to the emergence of citizen movements urging a humanitarian response.

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Meanwhile, the United Nations began its program of humanitarian aid to North Korea in 1996, and the United States and other countries contributed primarily through the World Food Program. International NGOs, including some U.S. agencies, delivered private contributions of food, fertilizer, and medicines. A small number of EU-based NGOs were allowed to open offices in Pyongyang with resident staff. This unprecedented access by the international community to North Korea led to the release of more detailed information about the famine conditions in the North including heart-wrenching images of starving children. This had an impact on South Korean citizens, and Korean NGOs mobilized to collect contributions from the public and to press the government to resume aid in spite of political tensions. In 1997, the Kim Young Sam government relented and allowed the NGOs to channel private contributions of aid through the South Korean Red Cross to its counterpart in the North. This single-channel approach was used to ensure that aid was linked to the South’s overall political strategy for dealing with the North.4 With the inauguration of President Kim Dae Jung in 1998, and the launching of his Sunshine policy, more aid began to flow to the North, and South Korean NGOs were given a freer hand to provide aid directly. As the nongovernmental community in the South organized, the amount of aid flowing from NGOs to the North increased steadily. The general relaxation of tensions following the June 2000 South-North summit allowed NGOs to greatly expand their independent activities. Though there have been periods when NGO programs were hampered by heightened inter-Korean tensions, the NGO humanitarian aid effort has persisted and even expanded over the past decade. An indication of their role in the South’s engagement policy toward the North is the fact that the NGOs were able to continue with a modest level of programs immediately following the North’s nuclear test in November 2006, and were in a position to quickly return to normal program levels following the February 13, 2007, Six-Party Talks agreement.5 And NGO humanitarian contact continued during the somewhat tense environment that existed in the opening days of the new Lee Myung Bak administration in early 2008. Range of Civil Society Engagement A very diverse set of organized groups with diverse goals has participated in programs focused on North Korea. We can usefully divide these into five categories based on their primary focus of attention: (1) humanitarian and developmental aid organizations (the focus of this study); (2) social, cultural, and academic exchange groups; (3) peace and unification promotion groups; (4) human rights and refugee aid groups; and (5) groups engaging

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in cross-border religious proselytizing. The first three groups promote the message of engagement with North Korea in one form or another, while the other two take a generally confrontational and more provocative approach toward the North.6 At one end of the ideological spectrum are initiatives focusing on what might be termed Track II political activities promoting unification (type 3, above). One example would be the 6.15 Kongdong So˘no˘n Silch’o˘n Namch’u˘k Wiwo˘nhoe (Association for Implementing the June 15 South-North Agreement). This group organizes celebrations and dialogues each year on the anniversary of the 2000 South-North summit with a planning committee that includes overseas Koreans as well as participation by North and South.7 Another progressive group, the Uri Kyo˘re Hanadoegi Undong (One Korea Movement), organizes South-North dialogues, provides some humanitarian aid, and organizes group tours to the North.8 At the other end of the spectrum are those groups actively challenging the Kim Jong Il regime by publicizing human rights conditions, broadcasting radio programs into the North featuring North Korean defectors, and operating across the North Korean border from China where they assist those wanting to flee, and distributing anti-state literature, videos, and religious tracts.9 In this highly charged atmosphere, which reflects divisions within South Korea about how to address the North Korean problem, a few groups try to take a nuanced and balanced position by supporting conditional humanitarian aid while at the same time documenting actual conditions in the North, and pressing for policies supporting refugees who have fled to China and to the South.10 Cultural and academic exchanges between the North and South have rapidly expanded since the 2000 summit and the numbers involved have reached the tens of thousands.11 These include sports events, academic meetings, social sector dialogues (e.g., women, labor, religious), and even student camps, all of which might be considered part of the broader civil society participation in engagement.12 These encounters have taken place in Pyongyang and in Seoul and other locations in the South, and also in China when the political atmosphere on the peninsula was less favorable. Also, the Mt. Kumgang resort developed by Hyundai Asan along the east coast of the peninsula just north of the Demilitarized Zone has become a favorite site for many such encounters.13 These activities tend to be episodic and highly choreographed, but do allow for large numbers of individuals on both sides to observe conditions on the other side and to interact with their counterparts. In some cases the South Korean participating group has provided one-time humanitarian aid in association with an event. The participation of NGOs in South-North programs has become a highly complex picture within a dynamic situation. All of these organizations are, in some sense, competing for the attention and support of the

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South Korean public. Based on their different motives and activities, they project very different images of North Korean society and its leadership. The different NGOs are also showing conflicting faces of South Korean civil society to North Korea, which must try to sort out who is “friend” and who is “foe.” This chapter focuses on humanitarian and development assistance NGOs that support engagement, and ultimately reconciliation. These NGOs have implemented sustained programs with the North, involving intensive interaction as well as practical cooperation, that have the potential for significant impact within the South’s broader engagement policy. However, it is important to keep in mind the larger and somewhat contentious South Korean civil society environment within which these aid agencies are operating. Humanitarian NGOs: Typology and Funding Source South Korean government policy requires that all individuals and organizations desiring contact with North Korean citizens or authorities receive approval from the Ministry of Unification. There is a registry of NGOs that provide humanitarian assistance to the North. Currently there are sixty-nine South Korean NGOs registered with the ministry. Although there is some overlap between categories, they can be usefully divided into several groups according to the nature of the organization and its support base (see Table 9.1). The Korean Sharing Movement (KSM) is perhaps the most influential and broadly based NGO aiding North Korea. The KSM was formed in 1997 by prominent religious and secular groups and individuals, many of whom had been active in the democratization movement, to mobilize the public to send food aid to the North.14 Other organizations directly affiliated with Protestant, Catholic, and Buddhist religious groups also responded early in the crisis. They draw their support directly from their religious institutions and supporters. The third category includes large welfare-oriented NGOs that had been well established before the North Korean crisis emerged and developed special programs addressing the needs of vulnerable groups in the North, especially children. Professional associations, primarily of medical doctors, became involved after the 2000 summit to provide direct service and technical assistance. The final category is composed of several organizations initiated with the support of the Korean government to implement particular projects that the government placed high priority on. These include large-scale rice cultivation, sericulture, and reforestation projects implemented primarily in the Mt. Kumgang resort and areas bordering the Kaesong Industrial Complex. In the year 2000, following the South-North summit, the Korea NGO Council for Cooperation with North Korea (KNCCK) was organized to

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Table 9.1 Typology of Humanitarian NGOs Providing Assistance to North Korea Typical Humanitarian NGOs

Description

Support Base

Typical Programs

NGOs focused exclusively on aid to North Korea

General public appeals

Food aid; Agricultural inputs & machinery; Medical supplies; Hospital rehabilitation

Korean Sharing Movement; Okedongmu Children in Korea

NGOs with a Christian & religious affiliation Buddhist or base associations & congregations

Food aid; Medical supplies & technology

Join Together Society of Korea; Eugene Bell Foundation; The Presbyterian Church of Korea; Lighthouse Foundation

Welfare NGOs with worldwide programs

Individual monthly donors and special campaigns

Child feeding; Food processing; Agricultural inputs and technology; Health programs

World Vision Korea; Good Neighbors International; Korean Welfare Foundation; Food for the Hungry International

Professional associations

Association chapters & members

Medical facilities & supplies

Green Doctors; Korean Medical Association

Governmentinitiated

Funded mostly by South Korean government

Rice & sericulture; Reforestation

Unification Agricultural Production Forum

facilitate information sharing and coordination, and to represent NGOs to the South Korean government. KNCCK influenced the government to establish a matching fund in order to amplify the assistance and role of the NGOs. As of 2007 there are forty-two member organizations of KNCCK, representing the most active NGOs assisting the North. Among other activities, KNCCK has helped organize four international conferences where South Korean and international NGOs assisting North Korea have shared experiences and discussed closer cooperation.15

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Notably, more than half of South Korean NGOs providing assistance to North Korea are affiliated with or directly supported by religious groups. Of the forty-two KNCCK members, sixteen are affiliated with Christian churches or groups (Protestant and Catholic) and five with Buddhist organizations.16 As in other countries, faith-based NGOs are at the forefront of domestic and international humanitarian activities in South Korea. The religious groups provide the institutional means for individuals to give expression to their faith-based humanitarian sentiments. They also provide the national networks through which support can be mobilized and information disseminated. An important development has been a change in the source of NGO funding as inter-Korean relations have evolved. Until the South-North summit in 2000, funding for NGO aid to the North came mostly from public campaigns and donations by churches and Buddhist religious organizations. However, after the summit donations from the public declined as the South Korean government stepped up its direct aid and the immediate crisis in the North seemed to subside.17 Also, a number of incidents created a negative perception about North Korea, depressing sentiment among the public in the South for assisting the North.18 The government’s matching fund, initiated in 2000, then became an important source of support and also influenced the funding strategies of the NGOs. The level of government subsidy, as shown in Table 9.2, does not appear large, reaching only about 16 percent in 2006. However, this is somewhat misleading. As one senior NGO program manager explained, while government funding appears to account for only 15–20 percent of the book value of most NGOs, the dependence on the government is greater than this figure suggests. NGOs obtain most of the supplies for delivery to the North (food, medicines, agricultural supplies, construction materials, etc.) as donations from Korean companies and the value of these donations

Table 9.2 South Korean NGO Matching Fund Allocations, 2000-2006.11 Year

2000

2001

2002

2003

2004

2005

2006.11

Amount of Grants (million Korean Won)

3,379

6,262

6,483

8,089

10,241

12,003

11,432

Number of NGOs receiving grants

7

13

14

19

22

29

33

7.3

10.6

9.6

6.1

13.5

16.3

Percent of total NGO aid to North Korea 7.8

Source: Republic of Korea, Ministry of Unification, http://www.unikorea.go.kr.

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in-kind is (correctly) included in calculating the NGO’s program contribution. However, the greatest constraint on NGO operations is operating funds, and the government matching fund represents more than half of such cash expenses of most NGOs.19 Another impact of the matching fund has been to encourage the formation of more NGOs aiding the North and to increase competition for corporate and public funds that become the basis for the match by the government. Motivation and Goals of NGOs In order to gauge the effectiveness of the efforts by South Korean NGOs to engage North Korea through humanitarian assistance, we should understand the goals and objectives of the NGOs. Based on a perusal of official statements by some of the leading South Korean NGOs, we can identify three major objectives:20 Relieve the suffering of ordinary North Korean people. This was the initial impulse of almost all aid projects and remains the core purpose as articulated to the South Korean public. Support reconciliation between the people of South and North. Most NGOs articulate aims such as easing tensions, building bridges and improving understanding between South and North Korea. Many mention the hope that unification will be brought closer through their activities. Create opportunities for South Korean civilians to be directly involved in the engagement process. For many NGO leaders the process of engagement and ultimately unification should not be left to the governments alone. The general population should have a way of participating in the process and contributing their ideas and resources. In this way the commitment among South Koreans to peaceful engagement and unification will be broadened and deepened. A typical statement of purpose is that of the KSM: “With humanitarian assistance to the North and cooperative projects with the North, KSM strives to contribute in [sic] the settlement of peace in the Korean peninsula and to establish reconciliation and coexistence among the people by ending the hostility and opposition.”21 Many of the religiously backed or motivated NGOs speak of an additional quiet objective to open the hearts of officials and ordinary people in the North to religious principles in preparation for the day when North Koreans will have the freedom to express their faith and affiliate with religious organizations. Though the North Korean regime has historically been

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deeply antagonistic to religion and to Christianity in particular, the authorities have shown little reluctance to working with the faith-based South Korean humanitarian NGOs. The unspoken understanding appears to be that these organizations will refrain from directly engaging in proselytizing activities, and they will avoid cooperation with those faith-based groups who focus on human rights advocacy or seek to infiltrate religious materials into the country. The motivations and objectives of South Korean NGOs lead to some differences with international NGOs in the way they work with North Korea. While international NGOs measure their success in the narrow terms of aid effectiveness in relieving suffering and solving the underlying problems, South Korean NGOs take a broader and longer term view.22 Most South Korean NGOs have been willing to accept restrictions on their operations and ambiguity in the impact of their efforts in order to maintain a working relationship with the North. They have also been willing to provide aid, at least initially, without demanding strict accountability.23 They assume that they are working within the traditional Korean social normative world and that their generosity and sincerity will eventually be reciprocated by their Northern counterparts in the form of greater trust, openness, and cooperation. With this perspective, Korean NGOs have persisted in their engagement with the North through the ups and downs of the North-South political relationship and the frustrations that have caused many international NGOs to restrict or even close their programs.24 Therefore, the engagement strategy of South Korean NGOs can be viewed as a form of unconditional engagement implemented without the expectation of a direct quid pro quo, but with the belief that over time this approach will result in behavioral change on the North Korean side.25

DELIVERING AID THROUGH NGO PROGRAMS To what extent have South Korean NGOs achieved their first and primary purpose, to relieve the suffering of their needy sisters and brothers in the North? Reaching the vulnerable population with aid is critical if the NGOs are to achieve their objective of demonstrating compassion and goodwill to the North Korean people. Furthermore, the NGO programs must constitute a significant benefit over and above what the South Korean government can provide if the North Koreans are to engage with the NGOs as serious partners and view the loss of their assistance as something to be avoided. Quantity and Types of NGO Aid Table 9.3 shows the trend of South Korean aid to the North through governmental and nongovernmental channels. The trend reflects political

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developments over the last ten years. After the one-time large government food shipment in 1995, tensions between South and North increased and government aid was restricted. Between 1996 and 1999, assistance from South Korean NGOs nearly matched the level of government aid. As the South Korean government’s direct material aid (primarily fertilizer, rice, and maize) increased rapidly following the 2000 summit, the NGO share in total aid from the South declined somewhat, though it has remained substantial, accounting for more than one-fourth of all aid from the South. Excluding the year 1995 (when NGOs were not yet allowed to participate in aid programs), the value of assistance delivered to the North through NGOs

Table 9.3 South Korean Governmental and NGO Aid to North Korea, 1995–2006 (million USD) Year 1995 1996–99 2000 2001 2002 2003 2004 2005 2006

Korean government

Korean NGOs(a)

Total Aid from South Korea

Percent by NGOs

232.0 69.0 78.6 70.5 195.2 (c) 199.8 233.4 285.9 199.4

0.25 (b) 61.6 35.1 64.9 51.2 70.6 141.1 (d) 88.7 80.5

232.3 130.6 113.8 135.4 241.0 263.6 374.2 362.6 279.9

0.1 47.2 30.8 47.9 21.2 26.8 37.7 24.5 28.8

Total 1995–2006

1563.8

593.7

2138.8

27.8

Total 1996–2006

1331.8

593.4

1925.2

30.8

Source: Republic of Korea, Ministry of Unification, http://www.unikorea.go.kr. Note: (a) Matching funds from the Korean government beginning in 2000 are included in NGO totals since this study focuses on NGO delivery of aid. See Table 9.2 for details on matching funds. (b) From 1995 to 1997 NGO aid was channeled through the South Korean Red Cross. (c) From 2002 to 2005 the South Korean government provided rice “on credit” to the North, though it is widely admitted that these were essentially grants and so the value of this aid is included. The values of this rice aid (in millions of US dollars) are $106 (2002), $106 (2003), $118 (2004), $150 (2005). Rice “loans” were cancelled in 2006 due to the North’s missile and nuclear tests. (d) The spike in NGO aid was in response to the disaster at Ryongchon railroad-station in April 2004.

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represents about 30 percent of all South to North humanitarian aid over the past decade. In the early period, NGO aid consisted primarily of relief goods—food, medicine, and clothing—and donations were shipped by the South Korean Red Cross through the International Federation of Red Cross Societies (IFRC) representative in Pyongyang to the North Korean governmentcontrolled Red Cross. Since 1998, when the NGOs were first able to negotiate directly with North Korean counterparts, a gradual shift has taken place, from giving emergency aid to providing supplies to particular institutions (hospitals, orphanages, cooperative farms), then to rehabilitation of major facilities (food processing plants, clinics and hospitals, farm machine shops). More recently the North has proposed major infrastructure projects, such as construction of new hospitals, pharmaceutical plants, rural housing, and agricultural machinery factories. Since these projects have generally been beyond the capacity of one NGO, a number of NGO consortia have been formed to jointly implement such projects. Some NGOs shifted from emergency aid to rehabilitation and development-type projects more rapidly than others. World Vision Korea, for example, working directly and through its international affiliate, went through the following stages: (1) direct food aid; (2) noodle processing facilities; (3) agricultural rehabilitation; (4) introducing new seed potato technology and facilities with accompanying training and outreach throughout the country. Good Neighbors, which began a health program by delivering medicines and medical supplies, later joined with the KSM and other NGOs to construct a pharmaceutical plant for producing vaccines and will soon open another plant for capsule antibiotics. Finally, Okedongmu Children in Korea progressed from providing medical supplies to rehabilitating the Pyongyang Children’s Hospital to a projected plan for constructing a new two-hundred-bed children’s hospital in Pyongyang in cooperation with Seoul National University Hospital.26 These advanced projects involve delivery of new technology and training of local staff. The current programs of such larger NGOs include activities along the full spectrum: direct aid, rehabilitation, and major development projects.27 Reaching Intended Beneficiaries Who has benefited from this assistance? Direct monitoring to ensure delivery of aid to intended beneficiaries has been a serious challenge for all aid agencies working in North Korea, international as well as South Korean.28 Emergency aid provided by NGOs through the Red Cross before 1999, and aid delivered directly by NGOs after that, was often distributed by the North Korean government. Although assurances might be given that the aid was delivered to the agreed target group, usually children, there was no way to be

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sure. Some NGOs, including World Vision Korea and Good Neighbors, were able to negotiate access to specific institutions such as infant and children’s homes or schools. Through periodic visits to the institutions, it was possible to determine with some degree of certainty that food and other material aid had been delivered. More recent technical projects that involve delivery of machinery and supplies with specific and restricted uses have been easier to monitor. A high level of accountability has been achieved by the Eugene Bell Foundation, a South Korean–U.S. joint private effort that provides diagnostic equipment and medicines to a widening network of tuberculosis treatment hospitals and clinics in the North. Through regular visits to the recipient institutions and direct interaction with the staff, the foundation has been able to confirm receipt and use of this aid.29 The World Vision project for construction of seed potato production facilities in Pyongyang and four regional locations appear to be adequately monitored by frequent site visits by technicians and project managers.30 In response to pressure from their donors, and to some extent from international NGOs, most South Korean NGOs have shifted to location-specific assistance so that the use of donated machinery and supplies can be directly monitored. The trend has also been encouraged by North Korean pressure for the NGOs to undertake more high-value projects such as the facilities rehabilitation and construction projects described earlier. For such projects, which usually require collaboration by several South Korean NGOs, North Korean counterparts have allowed more frequent and direct access to project sites. The drawback was that North Korea sought to restrict South Korean NGO projects to the immediate Pyongyang area, apparently to limit contact with the local population. However, through persistent negotiations some NGOs and coalitions have recently extended such projects into provinces south and north of Pyongyang.31 The aid that South Korean NGOs as a sector provide or channel to North Korea is substantial when compared to other sources of assistance from the South. Although all NGOs continue to operate under some restrictions, focusing on more targeted and site-based projects has enabled the South Koreans to be more confident that their aid is being used as intended. Also, through new or rehabilitated service and productive facilities, the NGOs are directly or indirectly reaching many thousands in North Korea with improved services and products (although the users may not always know the South Korean role). However, a distinctive role for NGOs responding to most humanitarian crises is their capacity to identify and provide assistance directly to the most needy populations. This is also the expectation of most contributors. Until now the South Korean NGOs have not been able to deliver substantial assistance to such targeted groups, and this is a limitation that they have had to accept in order to work in the North. Nevertheless,

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the South Korean NGOs have demonstrated the capacity to learn from their experience and adjust their programs while operating under severe constraints. They have remained serious players in South Korea’s overall engagement strategy toward the North.

CONTRIBUTING TO RECONCILIATION THROUGH NGOS While delivering needed assistance to people in the North is the first-order objective of South Korean NGOs, closely related is the objective of contributing to reconciliation between South and North. NGOs could contribute to reconciliation by reducing misunderstanding, deepening trust, and providing alternative channels for communication that can operate when governmental channels are constrained. Civil society as usually understood—a relatively independent, nongovernmental sphere for citizen action—is entirely lacking in North Korea. Thus, there are no nongovernmental counterparts with which the South Korean NGOs can work and seek to influence.32 NGOs have contact potentially at two levels. The primary counterpart for most NGOs is a political arm of the Workers’ Party of Korea, charged and trusted with the delicate task of managing the relationship with nongovernment groups in the South with the aim of securing maximum aid while allowing minimum contact with ordinary North Korean citizens.33 North Korean propaganda has consistently painted the South as an economically divided and struggling society hopelessly polluted by U.S. imperialism and globalization, and harboring elements hostile to the North. They generally want to prevent the general population from knowing the source of aid from the South and, even more, they manage visits to minimize contact between visitors from the South and ordinary people.34 The relationship is an asymmetrical one. From the South, many NGOs with different leadership and agenda approach the North, but almost all of them are handled by a single authority on that side. In this way North Korea is able to know everything about the various NGOs and to use this information to its advantage. It controls access to operational units in the North and also plays on the spirit of competition among the South Korean NGOs to press for the most favorable assistance terms. Ultimately, the North Korean counterpart can open or close the door according to its satisfaction with each NGO’s programs or behavior. Developing and maintaining a good working relationship at this level is essential for the NGOs and contributes to the creation of multiple links between the South and the elite circles in the North. The second level of NGO contact is at the project sites. When visiting children’s homes, hospitals, or collective farms, NGO representatives can

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interact with those in charge and perhaps with some of the staff. We can assume that many others at the local level are aware of the South Korean visitors and may observe them at the project sites. The NGOs have sought to increase the quantity and quality of contact at this level in order to gain a clearer understanding of conditions and to communicate their goodwill directly to “ordinary” North Koreans. How can we gauge the degree to which NGO engagement has succeeded in reducing misunderstanding and building trust at these two contact levels in the North? NGO leaders claim that they have indeed succeeded to some extent, and they point to a number of indicators.35 Increased Access for Monitoring and More Contact with Project Level Staff Those NGOs that work on a relatively large scale, either alone or in consortia, report that access to project sites has gradually improved. At the sites they are able to interact directly with institutional staff, and they report that the staff are usually more open than government officials about actual conditions and are also much quicker to acknowledge the importance of the assistance they receive from the South. The KSM, for example, has implemented a project to construct rural housing in North Hwanghae Province, south of Pyongyang. Since 2005 the project has completed nearly three hundred houses in an arrangement where the NGO provides much of the material and the local people provide the labor. This project necessarily involves the participation of a large number of local people who know that the assistance they are receiving comes from the South. Since the start of the project, NGO representatives have made numerous technical and monitoring visits each year to the site and organized a number of donor group visits. Each group visit includes more than one hundred donors who travel to the remote project site, where they are greeted and entertained by the villagers and local leaders.36 Those NGOs supporting large-scale, site-specific projects appear to be following the same model.37 Thus, contact has become more intensive with a small number of local leaders and more extensive through donor tours involving large numbers of South Korean visitors. The Ministry of Unification reports that some 13,822 South Koreans (in 1,254 trips) visited the North between 1996 and 2005 to plan or monitor humanitarian projects.38 It is not possible to measure the impact of such interaction on the North Koreans with whom they meet, but there can be little doubt that knowledge of South Korea’s role in providing aid, as well as some realization of the standard of living in the South, is reaching a large number of ordinary North Koreans. Also, it is clear that the NGOs have expanded the reach of South Korea into North Korean society far beyond the few official, senior level contacts that the South Korean government is able to make.

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Continued Operations When Government-to-Government Dialogue Has Broken Down There have been three major interruptions in South-North official contact since 2000. The first break occurred following the June 2002 clash in the Yellow (West) Sea over fishing grounds between naval vessels of both sides. The second was a one-year cooling of relations following South Korea’s acceptance, in June 2004, of more than four hundred North Korean defectors who were detained in Vietnam. Most recently, tensions rose as a result of North Korea’s missile launches in July 2006, further aggravated by the nuclear test in October that year. In each of these cases South Korean official aid to the North was stopped or seriously curtailed and direct official contact cut or sharply reduced.39 The 2002 naval clash was a severe blow to President Kim Dae Jung’s Sunshine policy and President Kim responded by canceling official aid shipments. However, for the most part, the NGOs continued to visit the North and deliver aid during this period.40 From mid-2004 to mid-2005 all official contact between South and North ceased and the North allowed almost no NGO visits as well. Nevertheless, NGO representatives continued to meet with their counterparts in one-on-one and NGO group meetings organized in Beijing, Shenyang, and other locations. At these meetings agreements were made for shipping supplies to ongoing projects and plans discussed for future projects.41 The same pattern emerged following the missile and nuclear tests in 2006. Many NGO leaders felt that continuing nongovernmental contacts was critical in order to prevent the situation from turning into a crisis. After a brief slowdown, the NGOs quickly resumed their visits to the North within weeks of the nuclear test.42 This pattern of sustaining contact on the part of the NGOs can be evaluated positively or negatively, depending on one’s view of the best strategy for responding to North Korean behavior. However, it seems apparent that by 2008 the NGOs had developed sufficiently robust relationships with the North to sustain South-North contact during times of political stress. Whether or not the NGOs will be able to continue playing this role under the more conservative administration that came to power in South Korea in 2008 remains to be seen. Bridging Role for South Korean Official Contact with the North In more than a few cases mid-level government officials and staff of government think tanks, acting in their unofficial capacities, have joined NGO delegations visiting North Korea. Though informants are understandably reluctant to speak on the record about these visits, this practice appears to go beyond isolated incidents.43 It is safe to assume that the North Korean hosts know their visitors’ official roles. This practice serves two purposes.

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First, it allows South Korean policy advisors the opportunity to observe local North Korean conditions and meet a different level and range of North Korean citizens than they are able to encounter during official visits. For those who do not have the opportunity to join official delegations, it is their only opportunity for visiting the North. Second, in unusual circumstances such tag-along visits may create the opportunity for backdoor dialogue and exchange of views under conditions in which both parties enjoy the protection of deniability. This kind of contact could be especially important during periods when official contact is suspended. Through multiple, penetrating, and sustained contacts with the North, many South Korean NGOs indeed appear to have built working relationships based on an element of trust. They have reached beyond the designated counterparts to make at least superficial contact with a large number of North Koreans. They have opened alternative channels of dialogue that are sustainable during times of stress and which can play a bridging role for quiet contacts at a quasi-official level. However, there is a flip side to this development. Just as the role of NGOs becomes more valuable when official relations are frayed, their role tends to be downgraded when South-North relations improve and large-scale government aid begins to flow to the North. This does not in any way reduce the value of their bridging role in difficult times, but it does raise questions about their long-term role in a successful engagement process.

ENCOURAGING SUPPORT FOR RECONCILIATION AMONG SOUTH KOREANS Thousands of South Koreans have visited North Korea to monitor or observe humanitarian projects, and tens of thousands have had direct contact with North Koreans through other civil society activities. Many more South Koreans have made donations to support the work of the NGOs and have read reports or viewed videos about the projects. This indicates that the NGO goal of providing a means for South Korean civilians to participate in engagement with the North has succeeded to some extent. However, is it possible to gauge the impact this greatly increased contact has had on attitudes in the South toward reconciliation with the North? It is not possible to distill the particular contribution of NGO engagement to forming the public’s attitude toward the North. The contact and information that their activities channel are only part of the full spectrum of South-North interaction. Nevertheless, looking at the larger picture, survey data seem to indicate that the majority of the South Korean public consistently supports some kind of engagement policy toward North Korea.44 At the same time there appears to have been a steady erosion of support for providing aid to the North. Surveys conducted over several years by a pro-

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gressive daily newspaper show a steady decline in support among the general public for aid programs, from 59 percent in 2002 to 39 percent in 2007.45 It appears that for more and more South Koreans, engagement does not necessarily mean more aid. In 1996 and 1997, graphic reporting about famine in the North triggered a highly emotional response among South Koreans, many of whom still have relatives in the North. The result was generous support for emergency aid, with emphasis on volume more than targeting. However, thanks to NGO and broader society engagement, South Koreans now have much more information about North Korean society, and not all of it is positive. At the same time, the rapidly increasing number of North Koreans who have fled to China and the South and the activist groups supporting them have spread a distinctively negative image of the North. South Koreans now appear to want a more principled and professional approach to engagement, whether through governmental or nongovernmental channels, and this was reflected in the policy position of incoming President Lee Myung Bak. Opinion is divided about the way aid should be used in the overall relationship.46 Few call for halting aid altogether, but most want to see some conditionality and reciprocity in the way aid is provided. The result has been increased pressure on the NGOs to achieve more transparency and accountability in their projects. It seems clear that South Koreans, after more than a decade of engagement with an increasing level of civilian participation, have developed a more nuanced and realistic view of the North. One indication of this is a trend that seems to be emerging in the thinking of two nongovernmental sectors, the humanitarian NGOs and the human rights advocacy groups. Until recently, these were two camps that had very different priorities and followed different strategies. The NGOs aimed to reduce suffering in the North through humanitarian engagement, which meant that all open criticism of the North Korean regime and system should be muted. The human rights organizations claimed that the North should be “blamed and shamed” in order to end the most abusive rights violations as quickly as possible. The experience of the past decade and the much greater information base on the North now available seem to have convinced some key elements in both camps that coordinating their efforts may be the best engagement strategy. A tentative dialogue has begun between representatives of the humanitarian and human rights groups in South Korea to share information about conditions in the North and develop joint analyses on which to base programming.47 The decade-long humanitarian project of South Korean NGOs has probably had greater impact on the thinking about reconciliation and unification in the South than in the North. If NGO engagement continues to influence South Koreans toward a consensual view about how to relate with the North, and toward support for pragmatic approaches that go beyond char-

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ity to encourage change, then the NGOs will certainly have made a major contribution toward peaceful resolution of the South-North division.

ASSESSMENT AND CHALLENGES The evidence indicates that South Korean humanitarian NGOs have, to a large extent, realized their goals of delivering humanitarian aid directly to the people of North Korea. They have created and expanded channels for direct contact between people in the South and North. They have generated flows of information that have had a real, though asymmetrical, impact on how North and South Koreans understand each other. The NGOs have added a dimension to the South’s engagement policy toward the North that would have been absent if interaction was solely on a government-togovernment basis. They have enabled contact between the South and North to be maintained at some minimum level even as the official relationship has fluctuated. This success has been achieved in spite of suspicion and resistance on the part of the North and a lack of consensus about their motives and role among the public in the South. The largest and most active NGOs have shown the persistence and capacity to learn from their experience and to adjust their program approaches in order to maintain their engagement with the North. Their approach is in the process of changing from unconditional engagement to what might be called partnership engagement in which there are clear expectations of active cooperation and mutual contributions to development-oriented projects. Nevertheless, it is clear that the NGO approach to engagement has had its limitations. The scale of assistance remains relatively modest and is becoming more dependent on government subsidies. While gradually expanding, their degree of penetration into North Korean civilian society is still limited. Perhaps the biggest challenge for South Korean NGOs will come if the plans for greatly increasing South-North economic cooperation agreed to in the October 2007 summit are actually implemented by the new Lee Myung Bak administration. Both governments have justified the role of the NGOs, to some extent, as a substitute for their constrained official interaction. What happens when assistance through official channels is stepped up? In order to stabilize their current engagement role and sustain a role into the future, the South Korean NGOs will need to face and resolve a number of challenges. Financial Stability The NGOs have been able to sustain their current level of programming only with substantial subsidies from the government’s matching fund. Some

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level of government support need not be viewed as problematic, as long as this funding is used to leverage a healthy level of private support from the public and the NGOs are able to maintain their independence in operational terms. Public support for NGO aid to the North has been fickle. It increases when humanitarian needs appear to be acute, but is difficult to maintain at a steady level over extended periods. The challenge will be even greater if the South’s official aid program for the North is greatly expanded and the public sees the role of NGOs as less important. Technical Sustainability The shift from programs based primarily on donations of food and medicines to more complex and larger-scale projects has helped solve problems related to monitoring and transparency, but it has also created serious problems related to sustainability. The new facilities and related technology require supportive infrastructure, a steady energy supply, trained technicians, and a regular flow of consumable inputs and supplies. All of these factors are in short supply in the North. Ensuring availability of inputs and spare parts has been especially challenging, and NGOs have continued to supply most of these free from the South or from China.48 In general, these complex projects are raising some basic development assistance dilemmas for the NGOs and forcing them to confront the problem of sustainability. North Korean Counterparts The full potential of engagement by NGOs (and by civil society more broadly) can only be achieved when the process creates multiple strands of nongovernmental two-way cooperation and dialogue. A fundamental limitation in this situation, however, is the lack of sufficiently independent counterpart organizations in the North that can enter into these kinds of civilian bilateral relationships. This constraint will persist as long as the North Korean system remains unchanged. South Korean NGOs can encourage the evolution of more professional and rational institutional partners by modeling appropriate organizational and program management, both with their intermediate counterparts and with local project managers. Distinctive Role When official South-North economic cooperation increases significantly, the NGOs will be challenged to justify continued support from the general public (who will probably be required to shoulder new taxes) and continued access to government matching funds in the South, as well as the willingness to cooperate with them on the part of the North. In this new environment

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South Korean NGOs should be in a position to play the distinctive role that effective development-oriented NGOs play in other developing countries. The elements of this approach include community participation, problemfocused planning and evaluation, human capacity building, locally appropriate technology, and innovative solutions such as microcredit and microinsurance. NGOs can also continue to play an important role in bridging the information gap between government-level engagement and realities at the local level.49 To meet these challenges the South Korean humanitarian NGOs should accelerate their efforts toward professionalization and coordination. They should strengthen their capacity for planning and managing development assistance projects drawing on the extensive international experience in transitional states. They should increase their level of coordination and cooperation within their own sector as well as with international NGOs working with North Korea. The Korean government, for its part, should treat the NGO sector as an essential but independent partner for the South’s engagement policy toward the North. In this way, rather than remaining an adjunct, NGOs will be mainstreamed into South Korea’s engagement strategy. NGO engagement represents the first steps toward people-to-people reconciliation between South and North Korea. Given the vast economic gap between the two sides, NGO engagement will continue to have an essential role to play, not only in addressing humanitarian and development needs in the North, but more importantly, in creating the multiple strands of human contact on which reconciliation and unification must be built.

NOTES The author would like to thank Moon Chun Sang and Choi Seunghee for their assistance. 1. Sunhyuk Kim, The Politics of Democratization in Korea: The Role of Civil Society (Pittsburgh: University of Pittsburgh Press, 2000). 2. Choi Dai-Seok, “Roh Administration’s Humanitarian Policy toward North Korea,” Korea Focus, July–August 2004. http://www.koreafocus.or.kr/essays/ view.asp?volume_id=35&content_id=13&category=G. 3. The relationship between the evolution of South-North relations and food aid is described in Don Oberdorfer, The Two Koreas: A Contemporary History (New York: Basic Books, 1997), 369–99. For a summary of the political economy of South Korea’s aid to the North, see Stephan Haggard and Marcus Noland, Famine in North Korea: Markets, Aid, and Reform (New York: Columbia University Press, 2007), 140–49. 4. The politics and programs of South Korean NGO aid to the North up to 2002 is described in Chung Oknim, “The Role of South Korean NGOs: The Political Context,” in L. Gordon Flake and Scott Snyder, Paved with Good Inten-

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tions: The NGO Experience in North Korea (Westport, CT, and London: Praeger, 2003), 81–110. 5. “Pukhaek haebingmudae sok pukjiwo˘n tanch’e pap’u˘da” (In the thawing mood surrounding North Korea’s Nuclear Program Aid Organizations Are Busy), Yonhap News, March 16, 2007. 6. For a comprehensive study and evaluation of civil society exchanges with North Korea, see Lee Keum-soon, Taebuk chiwo˘n min’gan tanch’e u˘i nambuk kyoryu hyo˘pnyo˘k yo˘n’gu (A Study of Civil Organization Aid to North Korea and South-North Cooperation) (Seoul: KINU, 2004). 7. “6.15 7-chunyo˘n Pyongyang minjok t’ong-il taech’ukjo˘n kaemak” (Opening of the Pyongyang National Unification Grand Festival for the 7th Anniversary of June 15), Chosun Ilbo, June 14, 2007. http://news.chosun.com/site/data/html_dir/ 2007/06/14/2007061400807.html. 8. See trip reports on the One Korea Movement Web site, http://www. krhana.org. 9. Louise Lim, “North Korean Defectors Fight Regime with Radio,” All Things Considered, National Public Radio, October 24, 2006. http://www.npr.org/ templates/story/story.php?storyId=6376561. Michelle Vu, “Christians Find Innovative Ways to Smuggle Gospel into N. Korea,” Christian Post, April 29, 2007. www. christianpost.com/pages/print.htm?aid=27134. 10. The Citizens Coalition for North Korean Human Rights is an example of such a group. See their Web site: http://www.nkhumanrights.or.kr. 11. According to the South Korean Ministry of Unification, the number of South Koreans visiting the North for all purposes (excluding visits to the Mt. Kumgang resort and the Kaesong Industrial Complex) increased from 536 in 1995 to 7,280 in 2000, and reached 100,838 in 2006. North Koreans visiting the South have numbered approximately one thousand per year since 2002. For the data in detail, see http://www.unikorea.go.kr/index.jsp. 12. For example, in August 2005, a North Korean track and field team accompanied by a 125-member cheering squad participated in a sports meet in Inchon. In May 2007, sixty South Korean scientists traveled to Pyongyang for a five-day seminar with fifty North Korean counterparts. Sixty North Korean labor officials traveled directly to Changwon, South Korea, for a joint celebration of the May 1 labor holiday in 2007. Inchon News, August 23, 2005; Yonhap News, May 1, 2007; Yonhap News, May 13, 2007. 13. In November 2006, 115 South Korean journalists met with fifty North Korean media workers at the Mt. Kumgang resort. In April 2005, representatives of North and South “peasants organizations” met at Mt. Kumgang and vowed to safeguard Korea’s “food sovereignty.” The flow of tourists to Mt. Kumgang is another aspect of South-North contact. From 1998, when the program began, until July 2007, approximately 1.5 million South Koreans visited the resort just inside North Korea on the East Coast of the peninsula. Given the lack of substantial contact with North Koreans and the short duration of such visits, this activity has not been considered an aspect of civil society engagement. However, there is evidence that cross-border tourism has played a positive role in the South’s overall engagement strategy. See Naeil Shinmun, January 7, 2004; Vantage Point, Yonhap News Agency, June 2005, 41; Vantage Point, Yonhap News Agency, December 2006, 42.

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14. The Korean Sharing Movement delivered about $65 million worth of aid to the North between 1996 and 2006, and made 244 monitoring and donor visits involving more than 2,500 South Koreans in the same period. See Korean Sharing Movement, “Korean Sharing Movement Ten-Year Report,” November 2006, 12–13. 15. See Korea NGO Council for Cooperation with North Korea (KNCCK), Proceedings of the 4th International NGO Conference on Humanitarian Assistance to DPRK: Regional Peace and Development Cooperation, May 28–31, 2005, Beijing. Available from Korea Sharing Movement, http://www.ksm.or.kr. 16. Category counts based on NGO profiles in Lee Keum-soon et al., Taebuk chiwo˘n 10-nyo˘n paekso˘ han’guk NGO hwaldong (White Paper on 10 Years of Aid to North Korea: South Korean NGO Activities) (Seoul: KNCCK, 2005). This is a set of profiles on the forty-two members of KNCCK as of November 2005. http://www.nkproject. org/guide/guide_view.php?category_id=03030000&idx=470. One analyst estimates that one-third of the aid provided to the North by NGOs came specifically from Protestant-affiliated NGOs. See Kim Philo, “Kidokkyo taebuk NGO u˘i punhwa wa chikyo˘ngbunso˘k” (Categorization and Context Analysis of Protestant North Korean Humanitarian Assistance NGOs) in Proceedings of the 3rd Regular Symposium of the Christian Society for National Unification, Seoul, April 28, 2007, 82–99. 17. There was a short-term surge in public contributions following the destruction of a large part of the town of Ryongchon in North Korea, in April 2004, caused by a massive railcar explosion. See Choi Hyong Kyu, “Mingan tanch’e tu˘l, pukhantongp’o tobgi naso˘” (NGOs Increase Aid to North Korean Compatriots), Joins, April 4, 2004. http://article.joins.com/article/article.asp?total_id=327360. 18. See Chung, “The Role of South Korea’s NGOs,” 91. 19. Author’s interviews with Lee Jong Moo, Korean Sharing Movement, December 2006 and July 2007. 20. See NGO statements in English in KNCCK, Proceedings of the 4th International NGO Conference on Humanitarian Assistance; Lee Keum-soon et al., Taebuk chiwo˘n 10-nyo˘n (10 Years of Aid to North Korea). 21. Lee Yong Sun, “Korean Sharing Movement,” in KNCCK, Proceedings of the 4th International NGO Conference on Humanitarian Assistance, 85–87. Statements by other South Korean NGOs indicating motives and goals are contained in the same publication. For example, Good Neighbors states that: “In hopes to bring reconciliation and cooperation to the relationship of North and South Korea, Good Neighbors began humanitarian aid for the North.” And Medical Aid for Children of DPRK states that: “In the long term, we hope that our work will help build trust between the people and government of both Koreas, paving the road for peaceful reunification one day.” 22. This difference has also caused some friction between international NGOs and Korean NGOs working with the North. Some international NGOs have held that by accepting lower standards of accountability the South Korean NGOs have undermined the effort to pressure the North to accept international standards in the delivery and monitoring of aid. See International Crisis Group, “Korea Backgrounder: How the South Views its Brother from Another Planet,” Crisis Group Asia Report No. 89 (December 14, 2004), 4–5.

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23. A South Korean NGO leader with extensive international experience once told the author that they do the best they can to monitor distribution of aid, but “we will only know the truth after unification.” 24. See Chung, “The Role of South Korea’s NGOs,” 104. 25. For discussion of “conditional” versus “unconditional” engagement in the somewhat different context of economic interdependence strategies, see Miles Kahler and Scott L. Kastner, “Strategic Uses of Economic Interdependence: Engagement Policies in South Korea, Singapore, and Taiwan,” Journal of Peace Research 43, no. 5 (2006): 523–41. One senior NGO informant preferred the term contested engagement, arguing that the major South Korean NGOs continually pressed their North Korean counterparts for greater transparency and reciprocity, and over time they saw some improvements. In the end, however, the choice came down to accepting the North Korean terms or discontinuing the programs. 26. Chae Byung Gun, “Group to Build Hospital in Pyongyang,” JoongAng Daily, February 20, 2007. 27. See program descriptions in Lee Keum-soon et al., Taebuk chiwo˘n 10-nyo˘n (10 Years of Aid to North Korea). 28. For the discussion in detail, see Edward Reed, “Unlikely Partners: Humanitarian Aid Agencies and North Korea,” in A New International Engagement Framework for North Korea?, ed. Ahn Choong-yong, Nicholas Eberstadt, and Lee Young-sun. (Washington, DC: Korea Economic Institute of America, 2005), 209–13. 29. See site visit reports posted on the Foundation’s Web site. http://www. eugenebell.org/eng/index.html. 30. A full description of this project is posted at http://www.worldvision. or.kr. 31. Interviews with staff of several South Korean NGOs, July 2007. 32. Kyung-ae Park, “The Status of Civil Society in North Korea and Its Ramifications for Inter-Korean Integration,” Joint U.S.-Korea Academic Studies 12 (2002): 195–211. 33. Currently the counterpart organization for almost all South Korean NGOs is Minhwahyo˘p (the Korean Council for Reconciliation and Cooperation), which operates directly under the Korean Workers’ Party. 34. One NGO donated modern medical equipment and a regular supply of medicines to rehabilitate a hospital and found a detailed description of the new facility in the Rodong Sinmun (the Korean Workers’ Party daily) with no mention of the donor and instead crediting Kim Jong Il. Interview with NGO staff, July 2007. 35. These observations are based on interviews with leaders of South Korean NGOs that have major programs in the North and supported by numerous informal conversations. 36. See http://www.sharing.net. 37. Good Neighbors has organized several trips a year for large numbers of its donors to visit project sites, usually on direct flights between Seoul’s Gimpo airport and Pyongyang. See “South Korean Charity Dedicates Animal Feed Factory to North Korea,” Vantage Point, Yonhap News Agency, July 2006, 40. The visit of 144 supporters of the Korean Sharing Movement to the completion ceremony of a pharmaceutical factory is reported at http://www.ngonews.co.kr.

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38. http://www.unikorea.go.kr/index.jsp. The ministry has not posted figures after 2005. 39. Following the inauguration of President Lee Myung Bak, in February 2008, there was a pronounced cooling of North-South official relations. The new administration’s announced policy of conditioned engagement, and its sharp criticism of the policies of the Kim and Roh administrations, provoked a negative response from the authorities in Pyongyang. In April, South Korean government officials were expelled from the Kaesong Industrial Zone and the Mt. Kumgang resort, and all official contacts ceased. See Shim Sun Ah, “Chill in Inter-Korean Relations Set to Continue: Experts,” Yonhap News, April 6, 2008, http://english.yonhapnews.co.kr/ northkorea/2008/04/06/13/0401000000AEN20080406000100315F.HTML. Nevertheless, some nongovernmental contacts continued. The Korean Sharing Movement was able to visit the North in relation to a reforestation project, also in April. See www.ksm.or.kr. 40. Chung, “The Role of South Korea’s NGOs,” 106. 41. Interview with Lee Jong Moo, December 2006. 42. “Mingan tanch’e ka ponu˘n haeksilho˘m sok taebuk chiwo˘n” (NGO Views toward Aid to North Korea following the Nuclear Test), Chosun.com. http://news. chosun.com/site/data/html_dir/2006/10/12/2006101260160.html; Lee Sang Dok, “Chongkyogye taebuk chiwo˘n kijigae pyo˘nda” (Religious Groups Re-start Aid to North), Maeil Kyongjae Shinmun (Economic Daily), November 8, 2006. 43. The author personally knows of two such cases and has received confirmation of others from NGO interviews. One senior NGO leader said that he opposed such “undercover” use of NGO operations but later changed his mind when he observed the contribution of such visits to good policy decisions by the South Korean government. 44. See International Crisis Group, “Korea Backgrounder,” 6–9. 45. “S.K. More Conservative Toward N.K., Economy: Survey,” Hankyoreh, May 21, 2007. http://english.hani.co.kr/arti/english_edition/e_national/210735.html. The survey question did not specify the type of aid nor distinguish between governmental and nongovernmental assistance. 46. This was starkly illustrated by two op-eds published almost simultaneously in two of the more conservative newspapers in the South. In one the former ambassador to Germany urged South Koreans to follow the German example of giving openhandedly to the North. Kwon Young Min, “Please Give More to the North,” JoongAng Ilbo, July 16, 2005. In the other a scholar recommended that the South use aid to apply pressure on the North to implement systemic changes. Kim Byung Yeon, “Debate over Providing Economic Assistance to North Korea,” Chosun Ilbo, July 15, 2005. 47. One indicator is that a prominent advocate of human rights for North Koreans has recently been named to the Board of Directors of the Korean Sharing Movement. 48. Good Neighbors has experimented with a scheme in which the North Korean counterparts pay in kind with minerals for supplies and the minerals are then monetized in South Korea for purchase of supplies in the South and in China. Interview with Lee Il Ha, president of Good Neighbors, May 2007.

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49. I have discussed the distinctive role of NGOs in more detail in Edward P. Reed, “The Role of International Aid Organizations in the Development of North Korea: Experience and Prospects,” Asian Perspective 29, no. 3 (2005): 64–69. Also see Erich Weingartner, “NGO Contributions to DPRK Development: Issues for Canada and the International Community,” North Pacific Policy Papers No. 7 (Program on Canada-Asia Policy Studies, Institute of Asian Research, University of British Columbia, 2001), 26–33.

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TEN

NORTH KOREA’S SOUTH KOREA POLICY Tactical Change, Strategic Consistency Charles K. Armstrong

SOUTH KOREA AND THE WORLD FROM PYONGYANG’S PERSPECTIVE North Korean policy toward South Korea, like South Korean policy toward the North, is ostensibly not “foreign policy” in a normal sense, but a unique relationship toward the other half of a divided nation. Both governments have maintained the official position that Korea is a single country, and the Democratic People’s Republic of Korea (DPRK, better known as North Korea) did not even make Pyongyang its official capital until 1972. Before then, North Korea saw Seoul as the capital of a unitary Korean nation, the southern part of which was unfortunately under (temporary) enemy occupation. North Korea’s acknowledgment of Pyongyang as its capital in 1972 was related to the dramatic changes in inter-Korean relations in the early 1970s, culminating with the July 4, 1972, Communiqué, which established, for the first time, official channels of exchange and communication between the two Koreas. However, despite some significant breakthroughs in inter-Korean cooperation during the 1972–2000 period (notably the 1984–85 cultural and family exchanges and the 1991–92 cooperation and nuclear agreements), substantial trade, tourism, investment, and exchange between the two Koreas did not take off significantly until the end of the 1990s. The symbolic turning point was, of course, the June 2000 summit

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meeting between Kim Jong Il and Kim Dae Jung in Pyongyang. In fact, the takeoff had begun shortly before the summit, with inter-Korean trade nearly doubling between 1998 and 2000.1 Economic interaction has increased more or less continuously since then, and the October 2007 summit between Kim Jong Il and South Korean president Roh Moo Hyun promised even more aid and investment to the North.2 Regardless of these substantive changes in the inter-Korean relationship, Pyongyang’s official position toward the South has remained fundamentally consistent. The DPRK still presents itself as the legitimate government of the Korean Peninsula, and indeed the 2000 summit itself and subsequent South Korean overtures toward the North may only reinforce this self-image, as does the fact that the second inter-Korean summit was also held in Pyongyang.3 Two successive South Korean presidents have met with Kim Jong Il in Pyongyang, and Kim has never visited the South, underscoring Kim’s aura of legitimacy—at least to the North Korean people. To be sure, North Korea has moderated its rhetoric about the imminence of unification since the June 2000 summit, suggesting that unification will not come any time soon but will follow a lengthy period of peaceful coexistence and cooperation between the two halves of divided Korea.4 But this should not be taken to mean that North Korea has relented in the legitimation war with the South; the same could be said for the ROK position toward the North. Non-hostile relations with Seoul remain in the realm of “intra-national co-operation” and are pursued to the extent that these relations are seen to bolster the North economically and politically. The track record of the last decade or so suggests that Pyongyang has been rather successful in this regard. While conceding relatively little to Seoul, and keeping South Korean tourism and investment tightly controlled and strictly confined, Pyongyang has benefited from South Korean economic largesse to the point that the ROK is now the North’s second-largest trading partner, after China and ahead of Japan; some three-fourths of North Korea’s exports go to these three countries alone.5 But, contrary to the expectations of liberal international relations theory, which suggests a direct correspondence between economic interaction and political interdependence, North Korea’s economic dependence on the South does not seem to have done much to alter North Korea’s behavior at the political level.6 If anything, the influence seems to work in the other direction: whereas one might have expected North Korean economic dependence on the South to restrain the North from bellicose behavior that the South clearly opposes, in fact South Korea apparently has expended so much political capital on a policy of engagement with the North that even as provocative an act as the October 2006 North Korean nuclear test has had little impact on the continued flow of capital from the South to the North.7 Critics of

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engagement would argue that South Korean generosity toward the North has been a one-way street. The purpose of a policy of engagement toward North Korea for all parties involved in Korean peninsular issues—including the other five members of the Six-Party process, the European Union, and others—has been somehow to induce North Korea to change, moderate, or modify its behavior.8 Ever since engagement was expressly pursued by the United States in the mid-1990s, its effectiveness has been fiercely debated in all of the “engaging” countries. There are strong arguments on both sides of the engagement debate, and North Korea’s record of responding to engagement is a mixed one, to say the least. But predicting and explaining these responses, “reading” North Korea, is one of the key issues of the debate on engagement. Dismissing North Korea as “irrational” or “unpredictable,” a common trope in the Western media, is clearly insufficient. But neither should one expect North Korea to behave according to the same logic or rationality as, say, South Korea or the United States. North Korea’s behavior, like that of any state, depends not only on rational responses to economic conditions, but also on the country’s outlook, ideology, and historical trajectory. North Korea’s response to engagement, now and in the future, is embedded in a worldview and sense of identity that is both flexible at the margins and powerfully resilient at its core. Therefore, it is important to try to understand how Pyongyang views the world, and its relations to South Korea within that general worldview, in order to gain insight into why North Korea has pursued its cooperative policy toward the South and what that might mean for other aspects of North Korean foreign policy behavior. North Korea’s approach to South Korea, and the world in general, is grounded in a number of basic principles which have remained the foundation of Pyongyang’s world view since the regime was established in 1948, however much the world and North Korea have changed in the meantime. Rather than direct determinants of policy, these principles may be considered ideological boundaries within which policy can be constructed, sets of beliefs rather than concrete policy formulae. To use a religious analogy, which may be particularly appropriate for the DPRK—a country that has often been described as a “cult”—we might consider these principles part of North Korea’s “theology.”9 These principles include the DPRK’s legitimacy as the true representative of the wishes and desires of the Korean people; the threat of the South Korean regime and its American backers to this legitimacy, and to the very existence of the DPRK; the need therefore to maintain constant vigilance (military, politically, and ideologically) against this threat; and the belief that, ultimately, the North Korean system will be embraced by the Koreans of the South and win the legitimacy struggle by unifying Korea under that system.10

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Pyongyang has responded to South Korea’s engagement policy, I argue, within the context of this established set of beliefs. Its approach to the South has altered considerably in tactics but remained generally consistent in strategy, albeit a strategy that now has a very long time horizon. Understanding the limitations and possibilities inherent in North Korea’s response to engagement can lead to a more realistic engagement policy, and helps the “engagers” avoid the frustrations and disappointments of either an unrealistic engagement policy, or an ineffective policy of coercion. I pursue this argument through an examination of the four major historical conjunctures in North-South Korean relations (1972–73, 1984–85, 1991–92, and 2000–present), demonstrating how North Korea’s Southern policy has altered at each conjuncture, and discussing why the current conjuncture has led to unprecedented inter-Korean cooperation, despite the recent downturn in inter-Korean relations.

PYONGYANG’S SOUTHERN POLICY: FOUR HISTORICAL CONJUNCTURES First Conjuncture: 1972–73 The DPRK was founded on a “revolutionary base” theory of its existence, that is, that North Korea would function as the basis of a revolutionary force that would ultimately unify the entire peninsula under a single socialist government.11 This theory has never been officially abandoned, although the tactic of “liberating” the South through a direct invasion has never been attempted again since the Korean War, and most likely has not been seriously considered for decades. Instead, after the Korean War Pyongyang pursued a policy of military buildup at home, internal subversion within South Korea (largely unsuccessful, as it turned out), and diplomatic competition abroad. Until 1972, both Koreas practiced their version of Germany’s Hallstein Doctrine or China’s “three no’s” policy toward the Republic of China on Taiwan: refusal to recognize the rival state’s existence or to maintain diplomatic ties with any foreign country that recognized it. Both Koreas were entrenched in their respective cold war blocs, and despite détente between the United States and USSR, the high state of tension between the United States and China—North Korea’s closest supporter—reinforced the North-South Korean confrontation and inhibited North-South contact. The dramatic change in regional, and indeed global, geopolitics symbolized by U.S. President Nixon’s visit to the People’s Republic of China in 1972 led to the first conjuncture in the change of North-South relations: secret communication between Pyongyang and Seoul, leading to the July Communiqué of 1972. By the 1970s the DPRK had put aside, or at least moderated, its Southern Revolution strategy.12 This does not mean

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that North Korea had given up altogether on the notion that the South Korean regime might collapse. Attempts to destabilize the ROK government through direct action reached a peak in 1968, with the infiltration of North Korean commandos onto the grounds of the South Korean presidential compound, or Blue House. The commandos came within a few hundred yards of their target, President Park Chung Hee, before they were apprehended by ROK security forces. Thereafter, direct action gave way to terrorist tactics by North Korean agents. In 1974 an ethnic Korean from Japan attempted to assassinate Park Chung Hee but failed, shooting and killing Park’s wife instead. In 1983, North Korean agents set off a bomb that killed several members of ROK president Chun Doo Hwan’s cabinet in Rangoon, Burma, although they missed killing Chun himself. But the DPRK’s assassination tactics were not the same as the kind of terrorism practiced by the Irish Republican Army in Britain or Islamic terrorist groups in the Middle East. The DPRK did not engage in random violence toward civilians, attempting to terrorize the population at large, but rather targeted political leaders for assassination.13 This is consistent with the North Korean belief that the people and government in South Korea can be separated, and that eliminating unpopular South Korean leaders will create a favorable image of North Korea among the oppressed South Korean civilian population. One major exception to this tactic was the bombing of a Korean Airlines passenger plane in 1987, which was apparently intended to create a climate of fear that would disrupt the 1988 Seoul Olympics. This turned out to be unsuccessful, and since 1987 there have not been any further DPRK-backed terrorist attacks on ROK citizens, as far as is publicly known. The latter half of the 1970s was probably the last point at which the DPRK held any serious hope of a military solution that would unify Korea in the North’s favor. The North Vietnamese conquest of the South in April 1975 might have suggested that Korean unification would follow suit, an idea reinforced by presidential candidate Jimmy Carter’s campaign promise later that year to pull U.S. troops out of Korea, signaling a reduced American military commitment to the ROK.14 The confusion in South Korea following the assassination of Park Chung Hee in October 1979 seemed, like the aftermath of the April Nineteenth Uprising that overthrew Syngman Rhee almost twenty years earlier, to be another window of opportunity for the North to take charge of Korean unification. But the Carter administration reversed itself on the troop withdrawal, and Park’s assassination (by his own chief of intelligence) was followed within two months by another military coup under General Chun Doo Hwan.15 If there had been any chance that chaos in the ROK would invite a North Korean intervention at that critical moment, the establishment of Chun’s iron-fisted rule and Reagan’s unqualified commitment to the ROK’s defense soon closed that window of opportunity. Thereafter, even the military balance shifted away from the

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North, the economic gap grew increasingly in the South’s favor, and the DPRK and ROK experienced a sharp diplomatic reversal, with more and more countries recognizing the South at the expense of the North.16 Second Conjuncture: 1984–85 North-South dialogue was revived in the mid-1980s, again through the initial auspices of the Red Cross. North Korea made the first move in this new conjuncture of North-South interaction, sending food, building materials and medicine to aid the South Korean flood victims in September 1984.17 But this second round also soon lost momentum, and fell apart amid mutual recriminations and acrimony. Pyongyang’s stated reason for pulling out of the inter-Korean talks was its opposition to the U.S.-ROK “Team Spirit” military exercises in 1985. But in retrospect, it is apparent that North Korea was becoming deeply uneasy about the emerging shift in the balance of global and regional forces. By the mid-1980s, South Korea under Chun Doo Hwan was pulling ahead economically just as the North’s economic development was showing signs of serious difficulty—a fact noted indirectly by Pyongyang through the conspicuous lack of economic references in its official pronouncements during those years.18 Seoul had won the right to host the 1988 summer Olympics, and South Korea’s economic achievements were increasingly recognized around the world, including by North Korea’s communist allies. Under these circumstances, North Korea was able to make little political gain from continuing its dialogue with the South, and abruptly put an end to it. The main DPRK proposal for the form of unification, to which it has returned consistently for more than two decades, is a “Confederation” of the two existing political systems on the Korean Peninsula. Pyongyang first explained this proposal in detail as the “Confederal Republic of Koryo˘” in1980, although North Korea first suggested such a confederation in August 1960 during the turbulent Chang Myo˘n government in South Korea.19 Seoul’s initial response was, to say the least, not very enthusiastic. Over time, however, the North has shown more flexibility in its Confederation proposal, a willingness to see confederation not as the end-goal of unification but a transitory institution and giving more rights to the two “regional governments.” By 1991, in fact, North Korean officials including Kim Il Sung were suggesting that there was plenty of room for negotiation with the South on the form of confederation and that both sides within a confederated Korean system could have considerable autonomy even in their foreign relations, under the general rubric of military and diplomatic unity.20 The “Confederal Republic” was coming to resemble the “Korean National Community” proposed as a unification strategy by ROK President Roh Tae Woo in the late 1980s.21

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Third Conjuncture: 1991–92 High-level North-South talks began again in the early 1990s. After a setback caused by DPRK protests over the ROK-U.S. “Team Spirit” joint military exercises, the fifth in this series of high-level talks in December 1991 resulted in an agreement on reconciliation, nonaggression, and exchanges and cooperation.22 The “Basic Agreement” was the most important declaration of North-South cooperation and coexistence since the 1972 Joint Communiqué, and was far more detailed than the 1972 agreement had been. It was followed in February 1992 by a joint “Declaration of the Denuclearization of the Korean Peninsula.” Once again, hopes were high for a major change in North-South relations and for a new momentum toward reconciliation and eventual unification. But once again such hopes would be unfulfilled. Regional and global circumstances had shifted dramatically, to the detriment of the DPRK’s position. The collapse of every communist state in eastern Europe between 1989 and 1991, including the USSR itself, came as a deep shock to North Korea and deprived Pyongyang of most of its important trade partners, political supporters, and allies. Even before the communist collapse, East European countries had begun to normalize relations with the ROK; by 1992, Russia and even North Korea’s allegedly staunch ally China had established diplomatic relations with Seoul. It would take almost a decade for a reciprocal movement of Western countries normalizing ties with Pyongyang. Economically, South Korea had long since leapt almost unimaginably beyond the level of the DPRK. Far from the Basic Agreement’s ushering in a new age of equality between the two Koreas, the times seemed to call into question the very ability of the DPRK to survive as a socialist state. And then, the collapse of the DPRK economy and the nuclear standoff with the United States made it appear that North Korea’s days were indeed numbered. Movement in inter-Korean relations, much less unification in the North’s favor, was a moot point. At the beginning of the 1990s, the North Korean economy, which had encountered mounting problems since the 1960s, tipped over from difficulty to disaster. Indeed, the entirety of the 1990s was a decade of disaster for the DPRK, beginning with the European communist collapse, proceeding to a crisis over international inspections of DPRK nuclear energy facilities that nearly led to war with the United States, the death of Kim Il Sung, and finally a series of natural calamities that pushed the North Korean food situation—never abundant to begin with—into full-scale famine.23 North Korea spent most of the decade simply trying to cope with this compound crisis, and its leadership seemed unsure of where to take the country. Meanwhile, many in the outside world expected an inevitable collapse of the DPRK. By the late 1990s the domestic situation, though hardly rosy, had improved. After a three-year “mourning period” following the death of his

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father, Kim Jong Il emerged as General Secretary of the KWP in 1997, and the following year was reappointed Chairman of the National Defense Committee, his main post and clearly the most powerful position in the DPRK. The younger Kim, without any apparent opposition (although the four-year delay after his father’s death led to speculation of an intra-elite power struggle), had consolidated his authority. The old-guard Manchuria guerilla fighters who dominated the centers of power under Kim Il Sung were disappearing from the scene through death or retirement, and Kim Jong Il’s generation was increasingly taking charge. By 1998 the “Arduous March” through hunger and distress was declared over, and the new slogans of the DPRK were Kangso˘ng Taeguk (Rich and Powerful Great Country) and So˘ngun Cho˘ngch’i (Military-first Politics). By the end of the decade, economic decline had been arrested, at least temporarily; according to ROK Bank of Korea estimates, the DPRK economy grew 6.2 percent in 1999, its first increase in a decade, followed by a more modest 1.3 percent growth in 2000.24 Fourth Conjuncture: 2000–Present The new millennium began with a dramatic, if largely symbolic, breakthrough in inter-Korean relations, the Kim Jong Il–Kim Dae Jung summit in Pyongyang in June 2000. This was preceded by an unprecedented flurry of diplomatic activities toward Western countries, beginning with the normalization of ties with Italy in January 2000. Within two years, Pyongyang had established diplomatic relations with all but two of the European Union member states, the EU itself, Canada, Australia, the Philippines, Brazil, and New Zealand; in July 2000, with Seoul’s encouragement, North Korea joined the ASEAN Regional Forum for intra-Asian security dialogue. North Korea also attempted to mend fences with Russia, and Kim Jong Il visited both China and Russia in 2001, his first official visits abroad as North Korean leader. The DPRK appeared to be finally emerging from its “lost decade” of inward-looking crisis management and political transition. In the area of internal change, there were strong signs of reform— including the use of the heretofore forbidden word reform itself—in the first two to three years of the new millennium. For nearly a decade before that there were indications of liberalization and the growth of local markets in the North Korean economy, what one American observer calls “reform by stealth.”25 In January 2001 the Rodong Sinmun announced a policy of Saeroun kwanjo˘ m (New Thinking) which called for scrapping outmoded habits and mentalities and putting all efforts into the technological reconstruction of North Korea.26 The sixtieth birthday celebration of Kim Jong Il in February 2002 and the ninetieth anniversary of Kim Il Sung’s birth in April were further occasions for the DPRK media to exhort the people to work harder

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and focus on the development of science and technology. Whether these well-worn techniques of socialist moral exhortation will help North Korea move technologically into the twenty-first century remained to be seen. On the other hand, at the beginning of July 2002 the DPRK had begun to institute some of the most far-reaching economic changes since the regime was founded in 1948.27 The food distribution system on which much of the population had depended (at least until the famine of the1990s) was reduced and modified; the price of rice was raised to near-market levels, and wages were correspondingly increased as much as thirtyfold; the official exchange rate for the North Korean Won was reduced from 2.2 to the dollar to nearly 200 won, approaching the black market rate; the taxation system, abolished in 1974, has reportedly been revived.28 These changes emerge out of a policy of “New Thinking,” announced in early January 2001, which emphasizes ideological and economic flexibility, industrial restructuring, and a focus on computers and information technology.29 In order to accomplish this, the famously isolated DPRK demonstrated a new willingness to learn from the outside world: in 2002, North Korea sent nearly five hundred government officials and students abroad to study technical subjects, economics, and business, almost triple the number Pyongyang sent in 2000.30 The reasons for breakthrough at fourth conjuncture, unlike the first three, had to do with the changes in the region and especially on the Korean Peninsula, as Pyongyang found itself faced with a government in the South that seemed genuinely interested in nonconfrontational interaction with the North for the mutual benefit of both. But above all, North Korea’s decision to press ahead with North-South interaction stemmed from Pyongyang’s decisions for change at the domestic level. North Korea at the beginning of the new millennium was moving cautiously but perhaps irreversibly in the direction of economic change, selectively engaging with the outside world. South Korea’s own policy of engagement coincided with North Korea’s new direction, and Seoul was a useful partner for furthering the North’s goals and ambitions.

FROM SUMMIT TO SUMMIT: PROGRESS, SETBACKS, AND A SECOND NUCLEAR CRISIS Between the first inter-Korean summit of June 2000 and the second summit of October 2007, North-South relations were on a gradual upward path, while the American relationship with North Korea went on a rollercoaster ride from bilateral engagement under Clinton, to confrontation under Bush, to multilateral engagement, to a crisis over North Korean missile and nuclear weapons tests, and finally to a new set of diplomatic agreements. North-South relations were inextricably tied to the United States: for South Korea, the United States was its most important ally; for North

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Korea, an improved relationship with the United States was seen as the key to improving its economy and ensuring its security. While North Korea went forward with its internal reform, its engagement with the South went quietly forward as well, primarily in the economic area. But the improvement of ties with the United States, which Pyongyang had pursued in close connection to its policy toward the South, and which had built considerable momentum in the Clinton administration, ground almost to a halt with the beginning of the Bush presidency in 2001. The reverse-course in America’s North Korea policy under Bush, and the second nuclear crisis that erupted in late 2002, revealed a profound disconnect between United States and ROK policy toward North Korea. Not until early 2007 were the two allies fully in sync in a policy of engagement toward the North (although the United States studiously avoided the word engagement, much as North Korea had earlier avoided the word reform). The DPRK responded harshly to George W. Bush’s condemnation of North Korea as part of the “axis of evil” along with Iran and Iraq in the president’s State of the Union address in January 2002. A foreign ministry spokesman called the Bush speech “little short of declaring war against the DPRK” and accused the U.S. administration of “political immaturity and moral leprosy.”31 In contrast to its condemnation of terrorism and expressions of sympathy for the United States right after September 11, the DPRK now suggested that the United States had only itself to blame: “Herein lie answers to questions as to why the modern terrorism is focused on the United States alone and why it has become serious while Bush is in office.”32 North-South relations were dampened considerably by this US-DPRK war of words. It took a visit to Pyongyang by Kim Dae Jung’s special envoy Lim Dong Won in early April to get inter-Korean dialogue restarted. On April 28, Pyongyang agreed to resume reunion meetings of separated family members and to move forward with high-level contacts and economic cooperation. On August 11–14 the first ministerial-level North-South meetings in nearly a year took place in Seoul. At the same time, the two sides marked the fifty-seventh anniversary of liberation from Japanese colonial rule on August 15 with an unprecedented joint celebration, including the visit of more than one hundred North Korean delegates to Seoul. Washington-Pyongyang relations also showed signs of thaw in late July and early August 2002, when Secretary of State Colin Powell met briefly with North Korea’s foreign minister at an ASEAN meeting in Brunei, and the Bush administration sent Jack L. Pritchard as its first official envoy to the DPRK. Pritchard, who had met with Pyongyang’s ambassador to the United Nations several weeks earlier in New York, went to North Korea in early August for the ceremony marking the start of construction on the first light-water nuclear reactor to be built by KEDO, the U.S.-South KoreanJapanese consortium formed under the auspices of the 1994 Agreed Frame-

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work. And on the DPRK-Japan side, Prime Minister Koizumi’s unprecedented summit meeting with Kim Jong Il in Pyongyang in September, where Kim made his extraordinary admission that North Korea had abducted more than a dozen Japanese citizens in the 1970s and 1980s, seemed at first to open up a new era in Japan-North Korea relations and start the two countries on the road to normalization. It turned out, however, that the Japanese media and public response to these revelations would elicit such feelings of hostility toward North Korea that normal relations appeared to be farther away than ever in subsequent months. The belated and tentative moves toward restarting U.S.-DPRK dialogue in late summer and early fall 2002 were dramatically derailed by the “Kelly revelations” of October. On October 16, the U.S. State Department announced that, some eleven days earlier, Assistant Secretary of State James A. Kelly had confronted his counterparts in Pyongyang with evidence that North Korea had “a program to enrich uranium for nuclear weapons, in violation of the Agreed Framework and other agreements.”33 According to U.S. accounts (North Korea later denied the accusation), the DPRK officials acknowledged the existence of this program and declared the Agreed Framework “nullified.” But North Korea insisted that the United States was to blame for the failure of the Agreed Framework, and offered to enter a new set of talks to resolve the crisis. The United States repeatedly refused to negotiate with North Korea before Pyongyang ceased all of its nuclear-related activities, and in November Washington suspended deliveries of fuel oil to North Korea required under the Agreed Framework. This was followed by a rapidly escalating set of moves on the part of North Korea toward restarting its plutonium program, frozen by the 1994 Agreement: Pyongyang announced its intention to reopen its nuclear power plant at Yongbyon, expelled International Atomic Energy Agency (IAEA) inspectors at the end of December 2002, announced its withdrawal from the NPT in January 2003, and began to remove spent nuclear fuel rods from storage in February—the latter an act that had brought the United States and North Korea to the brink of war in 1994. While the crisis in U.S.-DPRK relations deepened in 2003, North-South relations continued to move forward. Indeed, a distinctive aspect of the 2002–03 crisis was the common ground Pyongyang could find with the Seoul government in criticizing the American approach to Korea. This was the reverse of the 1993–94 crisis, in which the ROK government of Kim Young Sam deeply feared U.S.-DPRK “collusion” at the expense of South Korea’s national interest. This is not to say that Seoul-Pyongyang relations became cordial or that Seoul suddenly broke its ties with Washington; Seoul decried North Korea’s development of nuclear weapons, for example, and Pyongyang attacked the Roh Moo Hyun government for agreeing to send South Korean troops to Iraq. Roh visited Washington in May, and he and President Bush

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tried to put a unified face on their policy toward North Korea, which Pyongyang predictably condemned. But various agreements and meetings between the ROK and DPRK went ahead despite the new nuclear crisis, including a seven-point agreement on inter-Korean economic relations, signed by the representatives of North and South Korea in Pyongyang in late May. The two sides agreed on the establishment of a special industrial complex in the North Korean city of Kaesong, reconnection of east and west coast railway lines, and other joint projects. The agreement was presented positively and in detail in the DPRK media, although it was uncertain whether much could come of it until the conflict between Pyongyang and Washington was resolved. In April 2003 North Korean, American, and Chinese officials met in Beijing to discuss a way out of the impasse. North Korea dropped hints of developing its own nuclear deterrent. The United States, while stating it did not intend to attack the DPRK, acted as if coercion and pressure alone would resolve the problem—by North Korea either giving in to American demands or collapsing. Finally, however, the six parties of North and South Korea, China, Russia, Japan, and the United States agreed to hold talks on the issue. The Six-Party Process had begun, setting off a new cycle of “crisis diplomacy.” In September 2004, the DPRK announced its unwillingness to proceed to a fourth round of talks, at a speech at the UN General Assembly by DPRK Vice Foreign Minister Choe Su Hon. The main reason North Korea could not participate in further talks, Choe said, was the “hostile policy” of the United States, especially its insistence on CVID and its real intention of overthrowing the North Korean regime. In light of this, “the DPRK is left with no other option but to possess a nuclear deterrent.”34 At a press conference following the speech, Choe clarified the point that North Korea had already reprocessed the eight thousand spent fuel rods from the Yongbyon plant and “weaponized” the material. Nevertheless, Choe said, North Korea would still be willing to dismantle its nuclear program if the United States abandoned its hostile policy and normalized relations with the DPRK.35 In other words, North Korea was still playing the same game of brinksmanship from the early 1990s. In effect, North Korea was revealing its hand, claiming to actually possess nuclear weapons rather than leaving the issue ambiguous. The next step would have to be a North Korean underground nuclear test. North Korea did in fact return for a fourth round of talks, which established a rather vague agreement for Korean denuclearization on September 19, 2005. A fifth round ended in November after the United States announced it would freeze North Korean bank assets in Macau, at the Banco Delta Asia, due to suspicion that North Korea was using the bank to launder money for illicit purposes. The North Korea missile launches of July 2006 were probably, in part, a response to this American action.36 Finally, the nuclear test of October 9 came.

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The effects of these North Korean provocations on North-South relations were less than one might have expected, despite South Korea’s agreement to UN Security Council Resolution 1695 in response to the July missile test, and the much more strongly worded Resolution 1718, following the October nuclear weapon test. For example, South Korea agreed with the sanctions called for in the latter resolution, but later indicated that it would not intercept North Korean cargo ships to enforce the sanctions, as the United States had requested.37 Nor would South Korea’s projects in Mt. Kumgang Tourism and the Kaesong Industrial Complex be discontinued. The Roh administration was widely criticized domestically for its lack of concrete response to the North Korean nuclear test, despite its initial criticism of the North Korean action. For Seoul, engagement with the North and maintaining “peace and prosperity” on the Korean Peninsula was more important than resolving the nuclear issue; in a very short time, South Korea’s policy toward the North was essentially back to business as usual.38 The leverage that economic interaction had supposedly given the South over the North failed to deter North Korea from actions universally condemned by the international community, including the UN Security Council. Who was dependent on whom? In the end, even the United States appeared to back down from its condemnation, offering a set of incentives for North Korea to return to the Six-Party Talks.39 North Korea did return to the talks, and the result was the agreement of February 13, 2007, which called for the DPRK to shut down and abandon its Yongbyon reactor, invite back IAEA inspectors, and fully reveal the extent of its nuclear program. In exchange, the United States and Japan would move toward normalization of ties with the DPRK, and they and other countries would offer energy and humanitarian assistance to North Korea.40 The agreement, greeted as a major breakthrough in the nuclear crisis by all parties concerned, hit its first roadblock the following month when North Korea was unable to retrieve its $25 million frozen in Macau’s Banco Delta Asia (BDA). Pyongyang refused to go forward with its part of the February 13 Agreement until the funds were released, and the sixtyday deadline for shutting down the Yongbyon plant on April 13 came and went. As always, opinions differed on how serious North Korea was about dismantling its nuclear program.41 In the United States, the response to the February 13 Agreement ranged from accusations of appeasement and giving in to “nuclear blackmail” by the conservative press,42 to enthusiastic support by present and former American officials involved with North Korea negotiations.43 Eventually, with some assistance from Russia and US Ambassador Christopher Hill’s personal visit to Pyongyang in June, the BDA funds were released. North Korea followed by shutting down its reactor in July, and the six parties proceeded to a sixth round of talks in Beijing from September

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27 to 30, just days before the second inter-Korean summit. The result of the sixth round of Six-Party Talks was a joint statement, released by the Chinese Foreign Ministry on October 3, which added more substance to the framework established in the February 13 Agreement.44 This time, North Korea promised that it would shut down its nuclear facilities in Yongbyon and “provide a complete and correct declaration of all its nuclear programs in accordance with the February 13 Agreement” by the end of 2007. Furthermore, Pyongyang reaffirmed its promise not to transfer nuclear materials, technology, or know-how. The United States and Japan, for their part, reaffirmed their commitments to move toward normalization of relations with the DPRK; furthermore, North Korea would receive the equivalent of up to one million tons of heavy fuel oil—twice as much as in the 1994 Agreed Framework—in an arrangement to be worked out by a Working Group on Economy and Energy Cooperation. Less than a year after Pyongyang’s nuclear test, the mood around the North Korean nuclear test had changed from visions of the apocalypse to hopes for peace and economic cooperation. This cooperative spirit was doubly reinforced by the concurrent Second Inter-Korean Summit. At the time the Six-Party agreement was being finalized, Roh Moo Hyun met Kim Jong Il in Pyongyang between October 2 and 4. The summit had originally been scheduled for late August, but North Korea had requested a postponement due to severe flooding in the North that summer. The resulting eight-point agreement signed on October 4, more detailed and specific than the June 2000 agreement, outlined a wide range of cooperative activities. Prior to and during the summit, Roh had emphasized economic cooperation, which was embodied in Article 5 of the agreement; among other things, the two sides agreed to create a second special economic zone in the area of Haeju. But perhaps the most interesting section—from the perspective of the other countries in the Six-Party process—was Article 4, which recognized “the need to end the current armistice regime and build a permanent peace regime.” For this, “the leaders of the three or four parties directly concerned” would “convene on the Peninsula and declare an end to the war.”45 For North Korea, the Six-Party agreement and the second Pyongyang Declaration must appear as clear foreign policy successes. North Korea’s primary adversaries arguably had conceded more than Pyongyang. North Korea had agreed to disable its Yongbyon nuclear facilities and declare its nuclear programs, but in exchange it has received promises of aid and movement toward normalization from both the United States and Japan. The United States in particular, after years of tough talk and name-calling, made an almost complete reversal in its policy and entered into an agreement with North Korea strikingly similar to the 1994 Agreed Framework which the Bush administration had once loathed. As far as the South is concerned, inter-Korean economic “cooperation” will mean, for the foreseeable future,

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South Korean aid to and investment in the North. And for perhaps the first time, there seems to be a real prospect for a new peace regime on the Korean Peninsula. It remains to be seen how and to what extent South Korea’s new president Lee Myung Bak, who came to office on February 25, 2008, will maintain the ROK’s commitment to engagement with the North. In July 2007, the conservative Grand National Party, long hawkish on the North and soon to nominate Lee as its presidential candidate, revised its North Korea policy to favor engagement over pressure, little different from the position of the two “liberal” presidents, Kim Dae Jung and Roh Moo Hyun.46 But during his campaign, Lee promised to be tougher on North Korea than his predecessors and offer substantial economic assistance to the North only after it made a complete declaration of its nuclear program. After coming to office, Lee continued to criticize his predecessors’ engagement policy toward North Korea as “appeasement,” sounding much like the early George W. Bush administration. He also promised not to shy away from criticizing North Korea on human rights.47 In response, Pyongyang attacked Lee as a “traitor” and expelled all South Korean managers from the Kaesong Industrial Complex.48 Over the course of 2008 and into 2009, the war of words between Pyongyang and Seoul grew harsher. In late 2008, North Korea closed the DMZ to travel from the South; in January 2009, the DPRK announced that it had annulled all previous agreements on cooperation with Seoul, including the 1992 Basic Agreement on Reconciliation, Non-Aggression, Exchange and Cooperation; disputes over North-South jurisdiction in the Northern Limit Line in the West Sea threatened to escalate into open military conflict.49 North Korean media attacked the ROK government with vitriolic language little seen since the pre–Sunshine Policy days, referring to the South Korean administration as the “Lee Myung Bak group” and saying in one editorial that “if the puppet warhawks ignite a war of aggression against the north despite the unanimous aspiration of the fellow countrymen, they will perish in the flames kindled by themselves.”50 The ROK for its part stuck to its tough line on the DPRK, focusing on “reciprocity” from the North and on maintaining a strong alliance with the United States. If there had been a tension between Lee Myung Bak’s pro-business background (his former company, Hyundai, had after all been the largest South Korean corporate investor in the North) and his conservative, anti–North Korean support base, Lee seemed to have settled on the latter. Rhetorically, the Lee administration in its early days sounded more like George W. Bush in the “regime change” phase of his first administration than the more moderate, pro-diplomacy phase of the second Bush administration. The North appeared to be deliberately sidelining Seoul in the hopes of dealing directly with the (presumably more conciliatory) Obama administra-

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tion in Washington, which has called for direct dialogue with Pyongyang. If nothing else, anxiety over South Korea’s exclusion from a DPRK-U.S. agreement should have a moderating effect on Seoul’s policy toward the North. The DPRK, for its part, has put off hopes for achieving a satisfactory agreement with the South while it focuses on improving relations with the United States. Yet after a decade of deepening interaction and exchange, it seems unlikely that North and South Korea could return completely to the pre-1998 state of confrontation and mutual isolation. Both sides have too much to gain, and perhaps more importantly to lose, to give up on a policy of engagement.

CONCLUSION North Korean policy toward the South has been generally consistent in its fundamental principles while evolving tactically since the early 1970s. Both Pyongyang and Seoul have gradually shifted from uncompromising competitive legitimacy toward peaceful coexistence, without either giving up on the idea of national unity and its own legitimate leadership of a future unified Korea. However, since the June 2000 summit both sides have objectively moved in the direction of rapprochement rather than advocating near-term reunification. Pyongyang’s actions, like those of Seoul, reflect recognition of the status quo and the need for mutual trust and cooperation. For North Korea this suggests, and is certainly justified as, a change in tactics rather than strategy. But it may be that unification can remain in the realm of rhetoric indefinitely. If, in North Korea’s political theology, unification is analogous to the second of coming of Christ in Christian eschatology, Pyongyang no longer sees that “the time is at hand” for the millennium of unification.51 In that sense, North Korea’s “unification theology” has become more liberal and less fundamentalist over time. North Korea’s primary goal since the early 1990s has been regime survival, and beyond that, the improvement of its moribund economy without any substantial change in its political system. Gradually, the DPRK seems to be succeeding in its goals. If engagement and “Sunshine policy” were intended to fundamentally change North Korea in the near term, the policy is clearly overly ambitious. This does not mean, however, that the alternatives would have been any better. Coercion and pressure historically have done little to change North Korean behavior. Economic sanctions, even if they could be implemented (which is far from certain in the current regional environment, especially with regard to South Korean and Chinese policy toward the DPRK) are unlikely to have much positive effect either.52 Therefore, continued engagement, but with lower and more realistic expectations of engagement’s effect on North Korea’s near-term behavior, would be the most prudent policy. North Korea has changed, and will change in the future, but in its own way and at its own pace. The record of engagement over the past ten-plus years shows this:

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despite setbacks and recurrent crises, the trajectory of North Korean external behavior overall has been toward greater interaction and opening. The DPRK has promoted interaction with the South while avoiding dependence. Seoul’s leverage over Pyongyang is therefore real, but limited. In dealing with the changing external environment, North Korea is trying to hedge its bets, diversifying its economic partners (including South Korea, China, Russia, the European Union, and potentially Japan and the United States) while maintaining a credible deterrent—including the nuclear option, if necessary. The DPRK has done its best to convince the world that it is not likely to disappear any time soon, and if North Korea is in the game for the long term, an effective engagement strategy must also be a long-term prospect.

NOTES 1. Samuel S. Kim and Matthew S. Winters, “Inter-Korean Economic Relations,” in Inter-Korean Relations: Problems and Prospects, ed. Samuel S. Kim (New York: Palgrave, 2004), 64–66. 2. Choe Sang-hun, “South Korean Visits North, Offering Aid for Arms Cuts,” The New York Times, October 3, 2007, A15. 3. Han S. Park, North Korea: The Politics of Unconventional Wisdom (Boulder: Lynne Reinner, 2002), 124–30. 4. Rodong Sinmun, June 25, 2000, 6. Cited in Samuel S. Kim, “North Korea in 2000: Surviving through High Hopes of Summit Diplomacy,” Asian Survey 41, no. 1 (January/February 2001): 16–17. 5. Kim and Winters, “Inter-Korean Economic Relations,” 59. 6. See, among others, Robert O. Keohane and Joseph S. Nye, Power and Interdependence: World Politics in Transition (Boston: Little Brown, 1989). 7. South Korea signed on to UN sanctions after the nuclear test, and delayed shipments of rice aid in May 2007 after the North failed to shut down its nuclear reactor as stipulated by the February 13 Six-Party agreement. But other joint investment projects continued. See “S. Korea to Postpone Rice Aid until N. Korea Acts on Denuclearization,” The Hankyoreh, May 24, 2007. http://english.hani.co.kr/arti/ english_edition/e_international/211610.html. 8. See, among others, Victor D. Cha and David Kang, Nuclear North Korea: A Debate on Engagement Strategies (New York: Columbia University Press, 2003) and Son Key-young, South Korean Engagement Policies and North Korea: Identities, Norms, and the Sunshine Policy (London: Routledge, 2006). 9. I elaborate on the “theological” aspects of North Korea’s Southern policy in Charles K. Armstrong, “Inter-Korean Relations: A North Korean Perspective,” in Inter-Korean Relations: Problems and Prospects, ed. Samuel S. Kim (New York: Palgrave MacMillan, 2004), 39–56. See also Park, North Korea, 117–31. 10. Kim Myo˘ng-ch’o˘l, Kim Cho˘ng-il u˘i T’ongil cho˘llak (Kim Jong Il’s Unification Strategy), trans. Yun Yo˘ng-mu (Seoul: Sallimt’o˘, 2000). Kim, an ethnic Korean in Japan, claims to be close to the DPRK leadership and that his book represents their, and more specifically Kim Jong Il’s, view of South Korean and Korean unification.

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11. Kim Sungyu, “North Korea’s Initial Unification Policy: The Democratic Base Line,” in Kyo˘ngnam University Institute of Far Eastern Affairs, Pukhan ch’eje u˘i surip kwajo˘ng (The Process of Constructing the North Korean System) (Seoul: Kyo˘ngnam University Press, 1991), 220. 12. Yi Chong-so˘k, Hyo˘ndae Pukhan u˘i ihae (Understanding Contemporary North Korea) (Seoul: Yo˘ksa pip’yo˘ngsa, 2000), 381. 13. David Kang, “North Korea’s Military and Security Strategy,” in North Korean Foreign Relations in the Post–Cold War Era, ed. Samuel S. Kim (Hong Kong: Oxford University Press, 1998), 177–79. 14. Nicholas Eberstadt, “North Korea’s Unification Policy, 1948–1996,” in North Korean Foreign Relations, ed. Kim, 242; Don Oberdorfer, The Two Koreas: A Contemporary History (New York: Basic Books, 1997; rev. edition, 2001), 84. 15. For an evaluation of the U.S. role—or lack thereof—in this process by Carter’s ambassador to the ROK, see William H. Gleysteen, Massive Entanglement, Marginal Influence: Carter and Korea in Crisis (Washington, DC: Brookings Institution Press, 1999). 16. Barry K. Gills, Korea versus Korea: The Political Economy of Diplomacy (London: Routledge, 1996), 190. 17. Oberdorfer, The Two Koreas, 149. 18. Chong-Sik Lee, “The Evolution of North-South Korean Relations,” in North Korea in a Regional and Global Context, ed. Robert A. Scalapino and Hongkoo Lee (Berkeley: Center for Korean Studies, Institute of East Asian Studies, University of California, 1986), 126. 19. Yi Chong-so˘k, Hyo˘ndae Pukhan u˘i ihae, 382. 20. Harrison, Korean Endgame, 76. 21. B. C. Koh, “A Comparison of Unification Policies,” in Korea and the World: Beyond the Cold War, ed. Young Whan Kihl (Boulder: Westview, 1994), 156. 22. “The Politics of Inter-Korean Relations: Coexistence or Reunification,” in Korea and the World, 135. 23. The North Korean famine of 1995 to 1999 (acknowledged only as a “food shortage” by the DPRK), probably killed more than 600,000 people. Stephan Haggard and Marcus Noland, Famine in North Korea: Markets, Aid, and Reform (New York: Columbia University Press, 2007), 7. 24. Cited in Ralph C. Hassig and Kongdan Oh, “The New North Korea,” in Korea Briefing 2000–2002: First Steps toward Reconciliation and Reunification, ed. Hassig and Oh (Armonk: M.E. Sharpe, 2002), 90. 25. Selig Harrison, Korean Endgame: A Strategy for Reunification and US Disengagement (Princeton: Princeton University Press, 2002), 25. 26. Rodong Sinmun, January 9, 2002, 1. 27. For a perceptive and balanced analysis of the mixed results of these reform measures, see Christopher D. Hale, “Real Reform in North Korea? The Aftermath of the July 2002 Economic Measure,” Asian Survey 45, no. 6 (November/ December 2005): 823–42. 28. “North Korea Undergoing Economic Reform,” Chosun Ilbo (July 26, 2002); “Stitch by stitch to a different world,” The Economist, July 27, 2002, 24–26. 29. “Let Us Examine and Solve All Problems from a New Perspective and Position,” Nodong Sinmun, January 9, 2001.

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30. Nam Kwang-sik, “One Year of a ‘New Way of Thinking,’ ” Vantage Point 24, no. 2 (February 2002): 10. 31. “DPRK Denounces Bush’s Charges: Statement of FM Spokesman on Bush’s State of the Union Address,” People’s Korea, February 9, 2002, 1. The response is also available online as “Spokesman for DPRK Foreign Ministry Slams Bush’s Accusations,” Korean Central News Agency, January 31, 2002; http://www.kcna. co.jp/calendar/january. 32. Ibid. 33. Gavan McCormack, Target North Korea: Pushing North Korea to the Brink of Nuclear Catastrophe (New York: Nation Books, 2004), 161; James Kelly, “Ensuring a Korean Peninsula Free of Nuclear Weapons, Remarks to the Research Conference—North Korea: Toward a New International Engagement Framework,” February 13, 2004; http://www.nautilus.org/DPRKBriefingBook/Kelly_NKChancefor Redemption.html. 34. For the full text of the DPRK statement, see CanKor No. 181, October 1, 2004; http://www.cankor.ligi.ubc.ca/index.html. 35. Associated Press, “Weapons Deter U.S., North Korean Says,” International Herald Tribune, September 28, 2004; http://www.iht.com/articles/540890. html. 36. Leon V. Sigal, “What North Korea’s Missile Test Means,” Nautilus Institute Policy Forum Online 06-62A: July 27th, 2006. http://www.nautilus.org/fora/ security/0662Sigal.html. 37. Norimitsu Onishi, “South Korea Won’t Intercept Cargo Ships from the North,” The New York Times, Nov. 14, 2006. 38. International Crisis Group, “North Korea’s Nuclear Test: The Fallout,” Asia Briefing No. 56 (November 13, 2006): 8. 39. See Nautilus Institute, NAPSNet Daily Report, December 6, 2006. http:// www.nautilus.org/napsnet/dr/2006/dec/ndr06dec06.html#item1. 40. See http://www.state.gov/r/pa/prs/ps/2007/february/80479.htm. 41. Jae-Jean Suh, “North Korea’s Strategic Decisions after the February 13 Agreement,” Nautilus Institute Policy Forum Online 07-030A: April 10, 2007. http:// www.nautilus.org/fora/security/07030Suh.html. 42. “Faith-based Non-proliferation,” The Wall Street Journal, February 14, 2007. 43. Glenn Kessler and Edward Cody, “US Flexibility Credited in Nuclear Deal with N. Korea,” Washington Post, February 14, 2007. 44. For the full text of the agreement, see http://www.chinaconsulatesf.org/ eng/xw/t369084.htm. 45. “Declaration on the Advancement of South-North Korean Relations, Peace and Prosperity.” http://www.korea.net/news/news/newsView.asp?serial_ no=20071004023. The ambiguous phrase “three or four parties” derives from the fact that South Korea is not a signatory to the armistice, which was signed by representatives from China, North Korea, and the United States (representing the United Nations). 46. Kim Keun-shik, “Grand National Party’s Sunshine Policy,” Korea Focus, July 10, 2007. http://www.koreafocus.or.kr/politics/view.asp?volume_id=63&content_ id=101665&category=A.

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47. Leonid Petrov, “President Lee Myung-bak’s North Korea Policy: Denuclearization or Disengagement?” Nautilus Institute Policy Forum Online 08-025A, March 27, 2008. http://www.nautilus.org/fora/security/08025Petrov.html. 48. “Rocket Man v. Bulldozer,” The Economist, April 3, 2008. http://www. economist.com/world/asia/displaystory.cfm?story_id=10961848. 49. Alexander Vorontsov, “How Far Will the Seoul-Pyongyang Aggravation Go?” Nautilus Institute Policy Forum Online 09-014A, February 19, 2009. http:// www.nautilus.org/fora/security/09014Vorontsov.html. 50. Korea Central News Agency, “Lee Group’s Scenario for War of Aggression against North Assailed,” January 17, 2009. http://www.kcna.co.jp/index-e.htm. 51. Revelations 22:10 (King James Version). 52. See Ruediger Frank, “The Political Economy of Sanctions against North Korea,” Asian Perspective 30, no. 3 (2006): 5–36.

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ELEVEN

CONCLUSION Engagement in 2007 and Beyond David C. Kang

This volume began with the goal of assessing whether and how engagement has functioned in relation to the North Korean problem. Despite extensive controversy over the use of engagement as a strategy in dealing with North Korea (or Democratic People’s Republic of Korea: DPRK), by 2008, most of the other five countries directly involved in dealing with the North Korean problem had—to various degrees and with varying degrees of enthusiasm—arrived at policies of engagement with the DPRK. Why was this the case? In large part, engagement was eventually arrived at when it became clear that coercive strategies were unlikely to succeed, and were unlikely to gain the support of critical actors. Some countries, such as China and South Korea, never wavered in their belief that some type of engagement strategy was the best path to pursue with respect to North Korea. Others, such as Japan, were more disposed to engage North Korea in 2002, and subsequently moved more toward a coercive strategy. The United States pursued a more coercive strategy at the beginning of the Bush administration, but eventually settled on engagement as the most likely path to resolve the nuclear crisis. With the mostly positive moves of 2007, the potential for a long-term agreement between the United States and DPRK is greater now than in the past five years. The February 13 Agreement, and the follow-on meetings that have been held both by the Six-Party process and at the working

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group stage, have led to continued, albeit halting, progress. The framework of the February 13 Agreement is rooted in the September 19, 2005, Joint Statement. The creators of the new deal intended to “sharpen” what was already agreed to in 2005 with respect to: cultural exchange; normalization; the U.S. State Department’s list of State Sponsors of Terror; the Trading with the Enemy Act; the selection of a party (or parties) to pay for disablement; and the delivery of heavy fuel oil to North Korea. Thus, it is worth assessing where negotiations over the North Korean issue stand, the potential issues and problems that might arise in the future, and how engagement as an overall strategy may continue to play a role as the process continues. Essentially, any denuclearization of North Korea will require the other countries involved in the Six-Party Talks to be as much or even more engaged with North Korea as they have been in the past, and to maintain an active and consistent attention to the issue well into the future. Regardless of what one may think about engagement, it appears to be the only way to prompt North Korean denuclearization short of regime change and the possibility of chaos in the region. At this stage, it is important to begin thinking about the potential long-term issues and problems that may face the five countries involved as they move forward with their relationship with the DPRK. Although there are clearly many potential obstacles that could derail progress at any time, it is also prudent to consider how best to implement an agreement, and what the actual details and costs will entail. Three potential issues that will require sustained attention are the political issues involved in dealing with North Korea, the costs and actual problems in implementing any agreement to decommission nuclear facilities, and the process of institutionalizing the current negotiations and continuing progress even if the nuclear issue is resolved. All three issues will likely be far more difficult to address than many observers expect, and sustained attention and engagement will be critical to continued progress on the peninsula.

POLITICAL ISSUES A key issue for the other countries will come down to a question about whether they are better off with a deal than they would be without a deal. The deal itself has raised a number of follow-on questions: How much centrifuge equipment should North Korea declare, and should it declare nuclear components, too? The new deal does not specify whether these parts and components count as part of the nuclear program. In addition, will the other countries be able to inspect all suspected sites and will the IAEA have a role in this deal? Moreover, will there be a new protocol for future rights to inspect sites? Will North Korea allow inspectors to interview scientists?

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What will happen with respect to the suspicions regarding North Korea transferring nuclear technology to Syria? Given the expectation that North Korea will be less than fully forthcoming in their list of nuclear facilities and material, the question of “how much disclosure is enough” is critical. Even countries that have actively cooperated with the United States have provided incomplete and deceptive information to the United States regarding their nuclear activities. For example, Libya did not declare all its sites or its materials, and U.S. inspectors were “allowed to find” some of the materials that they did not declare. South Africa as well did not fully disclose all its programs. During the cold war, the United States itself lost track of some nuclear material stored in Texas until the Soviets reminded U.S. negotiators of that fact. Thus, there is reason to believe that even a relatively cooperative North Korea will provide information that is partial at best. The issue will become, how much information is enough, and whether the deal still makes sense even if there is the almost inevitable partial disclosure rather than full disclosure. The question will also become “meaningful violations” versus mere “violations” of agreement. Will a few ounces short on plutonium versus four kilograms make a difference? U.S. Ambassador Christopher Hill has described DPRK disclosures as an iterative discussion, in which there will be give and take, and it will be a process during which the United States will go back and forth to the North Koreans. The final document disclosing and listing North Korean nuclear facilities and materials will almost certainly be a negotiated one. Furthermore, North Korea will likely to provide “clarity” outside of the formal declaration. That is, the DPRK quite likely will declare much but not all of their facilities and nuclear material, and when pressed, will provide the U.S. with information informally: “Oh, you mean that!” There are also questions about how much North Korean information about the suspected highly enriched uranium (HEU) program will be enough. Christopher Hill briefed the U.S. Senate in November 2007 that he expects North Korea will declare that they are in possession of material that “might be construed by someone” that it could be used for HEU, and that the North Koreans are prepared to convince the United States that the material is not what was suspected. In early January 2008, Hill brought back North Korean aluminum tubes for testing in the United States, and while it was confirmed that they were not used in an HEU program, it was also clear that the potential for such a program existed. Questions by summer 2008 related to North Korean intentions instead of their actions—Why did they purchase these components? A complete stonewalling by the DPRK of their HEU program is considered unlikely, because the DPRK fully understands that the cause of the 2002 crisis were suspicions regarding an HEU

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program, and that without addressing those suspicions, there is no chance for progress with the United States. In sum, the actual North Korean nuclear problem is close to being capped. Even with potential DPRK hesitance about fully reporting, many observers feel relatively optimistic about the situation: DPRK plutonium production has been stopped, the HEU program is at worst a distant threat, and the Yongbyon facility has been disabled. One issue that remains is the question of transfer of nuclear materials or knowledge to third countries. If there actually is a link between the DPRK and Syria, the timing question becomes critical; if the cooperation between Syria and North Korea occurred in the distant past, that is a potential out. However, if the cooperation occurred in the past year or two, this is a major problem that potentially undermines any possible deal between the United States and the DPRK. Progress throughout 2007 has brought the six parties closer to a resolution of the nuclear issue than at any time in the past five years. Yet implementation and verification of any agreement remain major potential issues that will require sustained attention from the involved countries.

IMPLEMENTATION AND CONTINUED PROGRESS IN THE FUTURE The overall task of decommissioning is more than a pledge to stop producing nuclear material, it is a process to remove any capability by North Korea to produce nuclear material in the future. This is unlikely to be a quick process, and could very well last for years. The six parties need to complete four overarching tasks: Task 1: The plutonium production program: This task focuses on plutonium production, separation, storage, and waste processing facilities. Task 2: The nuclear weaponization program: This task focuses on any nuclear weapons and the means to research, develop, test, and manufacture them. Task 3: The uranium enrichment program: This task focuses on the dismantlement of any uranium enrichment activities and the facilities to research, develop, test, and make enrichment equipment, such as gas centrifuges. Task 4: Implementing the DPRK/IAEA safeguards agreement and bringing the DPRK into compliance with the NPT: The DPRK will need to rejoin the NPT and come into compliance with it, including implementing the Additional Protocol.

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North Korea must declare its arsenal so that inspectors can make thorough verifications. There will be three phases of progressive, verifiable dismantlement. For a number of reasons, the DPRK is a difficult country in which to operate, and this will increase the cost and also time of decommissioning. In particular, this will require that the other involved countries maintain attention to the issue. For example, virtually all equipment and materials will likely have to be brought in from elsewhere, because North Korea lacks almost any of the necessary technology to safely disable and dismantle nuclear reactors. For safe operations, many personnel will likely have to come from outside—and will demand high salaries to work there. Much of the needed infrastructure is lacking: there is no waste disposal site or vitrification facility in North Korea; there is no functioning safety regulator; there are limited roads, the roads that do exist are inadequate and poorly built, and transport for heavy equipment will thus be difficult; and there is limited and unreliable electricity, heat, and other utilities. During the time of the 1994 Agreed Framework, there are reports that a life preserver was left in the cooling pond that held radiation rods, because there was a risk that personnel could fall into the irradiated pond. At the same time, the United States and other members of the Six-Party Talks have financial and legal responsibilities with respect to North Korea that they also must meet. This has also proven to be far harder than is generally recognized. For example, the United States has pledged to remove North Korea from the list of State Sponsors of Terrorism, and to lift sanctions against it. The president does not merely make a declaration that they are no longer a terrorist group and then magically North Korea is welcomed into the world community. There are a myriad of laws and regulations that affect U.S.-DPRK relations, and each one of them needs to be dealt with individually. In fact, there are at least forty-two different laws restricting economic activity between the United States and the DPRK.1 Since the cold war began, the United States Congress created legislation affecting relations North Korea for the following reasons: it is designated as a “Marxist-Leninist” state, or non-market economy; it is on the list of State Sponsors of Terrorism; and it has detonated a nuclear device. Other legislation affects North Korea for issues such as human rights violations and the proliferation of weapons of mass destruction. Although North Korea was chiefly interested in being removed from the State Sponsors of Terrorism list and the Trading with the Enemy Act (TWEA), several other laws and regulations continue to prohibit the United States from having normal trade and foreign aid relations with North Korea. Depending on the legislative act, the U.S. government can either lift or waive legislation affecting U.S. relations with foreign countries. The president had the authority to waive North Korea’s status under the TWEA

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and to remove it from the State Sponsors of Terrorism list. Other legislation requires amendments by Congress. For example, the Foreign Assistance Act of 1961 (P.L. 87-195; 22 U.S.C. 2370 [t]) has no waiver and must be amended by Congress in order to exclude North Korea from the effects of this piece of legislation. Thus, the U.S. Congress cannot circumvent many of the laws putting sanctions on North Korea. The president can waive some, but not all, sanctions, and in other cases Congress will have to pass legislation on North Korea. For example, most foreign aid to North Korea is prohibited because it is a “Marxist-Leninist” country, and in order for this to change, the president has to make three findings: that relations with that country are vital to the security of the United States; that the recipient country is not controlled by the “international communist conspiracy” (clearly, wording from the heart of the cold war); and that assistance would promote independence of the country from communism. Congress could strike the reference to North Korea in the legislation, or the president can remove the country from the list. Beyond these legislative hurdles that the United States faces in fulfilling its obligations to North Korea, there are financial obligations, as well. Decommissioning the nuclear facilities is likely to cost billions of dollars and take years. Much of the cost of decommissioning will be borne by the United States, Japan, and South Korea, and it is not clear that the political will exists in any of these countries to fully fund their obligations. As noted above, almost all the equipment and expertise will have to be imported into North Korea, and this will not be cheap. Japan, for example, may very well balk at the notion of paying for North Korean disarmament, especially if resolution of the abduction issue is postponed. For any agreement with North Korea to be successful will require years of sustained political attention at the highest executive and legislative levels in each of the involved countries. Engagement is thus much more than a foreign policy strategy, it is also a process of domestic political will. Without sustained negotiation between North Korea and other countries at the working and political levels, many of these problems, which are more technical or infrastructural in nature, can lead to delays and frustration on both sides that could eventually evolve into a political problem. This is especially true because unless the project is carefully structured, the DPRK may have incentives to go slowly, and to tie progress to resolution of each political dispute that arises—potentially a key problem. Any agreement with North Korea is meaningless without implementation. In order to achieve that, the other involved countries must remain committed, and they will also have to make a substantial financial commitment. Maintaining political momentum is thus necessary: a sustained focus both in the other involved countries and with the DPRK will be critical to continuing the denuclearization process.

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BEYOND THE NUCLEAR ISSUE WITH NORTH KOREA Decommissioning and verification will also require an organization to conduct a range of activities to ensure that dismantlement has occurred and that sanctioned items are destroyed, shipped out of North Korea, or monitored. The organization charged with verifying theses actions will also undertake a set of actions to assure confidence in the absence of undeclared materials, equipment, and facilities. Although verification is essential, verified dismantlement of the DPRK’s nuclear weapons program can be accomplished successfully at a fair cost and in a reasonable amount of time. Furthermore, although the entire verification process will likely take several years, all parties would feel the positive impact of dismantlement almost immediately. One way to do that is to set up structures and institutions. Currently, the Six-Party Talks are the informal institution that has this responsibility, but this will almost undoubtedly require greater institutionalization later on. The level of coordination required to actually decommission North Korean nuclear facilities and implement the U.S. side of any bargain will most likely require real institutions. There are many possible candidates for the verification organization to verify North Korea’s complicity. They include: a specific organization created by the United States, other acknowledged nuclear weapon states, and other states in the region (a weakened version of this option is carrying out disablement and perhaps the verification of initial declarations); an “IAEA Plus,” which would involve the IAEA safeguards department supplemented by experts or assistance from key member states (variants of this model were used in Libya and South Africa); or a bilateral or regional inspection agency. Of these choices, IAEA Plus offers the most advantages and the least problems. The following are some considerations for both achieving implementation of the February 2007 agreement and continuing to resolve the larger North Korean issue: 1. The Six Parties group must play a central role to make sure that its interests are met. 2. The Six Parties must also be the major contributor toward implementation: It should be recalled that the U.S. Congress underfunded the 1994 agreement. The Clinton administration was criticized for attaining the Agreed Framework, while agreeing to contribute only $30 million dollars annually. 3. There must also be the establishment of a “Korea Peace Fund.” This fund would contribute to dealing with security issues, beginning with disablement activities. This may also address issues such

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ENGAGEMENT WITH NORTH KOREA as North Korea’s missile, biological, and chemical weapons, which the U.S. government will likely address. 4. As issues become more complex, the structures will need to evolve comprehensively to address such changes. These organizations will not be coordinated well in the Six-Party Talks; however, they should be able to report their activities back to the Six-Party Talks regime. 5. Perhaps a new KEDO might be established: This organization would be tasked with large projects. We should consider all options to ensure that we do not end up with a nuclear North Korea. 6. Other organizations could be established in North Korea. These organizations would focus on expanding North Korea’s relations with the outside world, including economic reform, trade and other business opportunities, humanitarian organizations, and social and cultural exchanges.

In sum, even as progress continues, engagement at every level will be critical to maintaining momentum and ensuring that denuclearization, and the normalization of North Korean relations with the outside world, continues. This will be a difficult task, and will require sustained political momentum in all of the countries involved in the process. The alternative—sliding back into confrontation and once again losing whatever progress has been made—is a sufficiently dangerous path that all countries would be wise to continue their efforts.

LESSONS: ENGAGEMENT AS A POLICY This book has focused on engagement as a foreign policy strategy, and three basic lessons emerge from its chapters: reactions, coordination, and reciprocity. Engagement and coercion are two sides of the same coin—both use incentives to cause a reaction in the other side. While coercion focuses on negative incentives, engagement focuses on positive incentives. In the abstract, neither is presumably a “better” way to approach an adversary—it is just as likely that either positive or negative incentives could cause a change in an adversary’s behavior. The lessons from these chapters reveal that reactions are fairly predictable, particularly in the case of North Korea. North Korean leaders have not shown any indication that they back down under pressure—indeed, they reveal the opposite reaction: North Korea meets pressure with pressure of its own.

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In a multilateral setting, coordination is also critically important for any type of strategy to be successful. Thus, even while the United States, South Korea, China, and Russia are moving toward an engagement strategy, Japan’s focus on its abductee issue and its desire for more coercion threatens to undercut other attempts. Thus, as much negotiation and bargaining needs to be done among putative allies as it does with an adversary. Finally, reciprocity is an important aspect of engagement. Unconditional engagement may be necessary at times, and in North Korea’s case, humanitarian concerns have often been important for getting food aid to North Korea. But just as important is to focus on conditional reactions, and to closely link engagement with actions from the adversary. Negotiation and political attention to engagement is neither glamorous nor quick, but a necessary component to make an engagement strategy succeed.

NOTES 1. Rennack, Dianne E., “North Korea: Economic Sanctions,” CRS Report for Congress, Congressional Research Service, Updated October 17, 2006, 29–32. http://www.ncnk.org/resources/publications/NCNK_Economic_Sanctions_Current/ file_view.

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EDITORS AND CONTRIBUTORS

Charles K. Armstrong is the Korea Foundation Associate Professor of Korean Studies in the Social Sciences in the Department of History and the director of the Center for Korean Research at Columbia University. His most recent books include The Koreas (Routledge, 2007); Korean Society: Civil Society, Democracy, and the State (editor; Routledge, second edition, 2006); Korea at the Center: Dynamics of Regionalism in Northeast Asia (coeditor; M. E. Sharpe, 2005); and The North Korean Revolution, 1945–1950 (Cornell University Press, 2003). He is currently completing a book on North Korea’s foreign relations in the cold war era. Professor Armstrong received a BA in East Asian Studies from Yale University, an MA in International Relations from the London School of Economics, and a PhD in History from the University of Chicago. Jung Ho Bae is Senior Research Fellow at Korea Institute for National Unification (KINU). His research interests include Japanese foreign policy and Korean national security. He is the author of a number of monographs and books in Korean on those subjects, including Domestic Politics and Foreign Policy of the Abe Cabinet (Seoul: KINU, 2007), Japan’s Security Strategy within its National Strategy (Seoul: Nanam, 2006), Korea’s Vision for 21st Century and Strategy toward North Korea (Seoul: KINU, 2002), Korea’s National Strategy and Security Strategy in the 21st Century (Seoul: KINU 2000), and Japanese Domestic Politics and Foreign Policy in the Post-Cold War (Seoul: KINU, 1999); he is the coauthor of Understanding International Conflict (Seoul: Korea Foundation, 1999). Bae received a BA in political science from Yonsei University and an MA and a PhD in political science from University of Tokyo. Youngshik D. Bong is Assistant Professor at the School of International Service at American University, Washington, DC. Bong’s research is focused on the interplay between nationalism and globalization on security issues including maritime disputes in Asia, anti-Americanism and U.S.-Korea alliance, and Asian regionalism. His recent work on anti-Americanism in South Korea is “Rethinking Young Anti-Americanism in South Korea” (with

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Katharine Moon) in The Anti-American Century, ed., Ivan Krastev and Alan McPherson (Budapest: Central European University Press, 2007). Leszek Buszynski is Professor of International Relations at the Graduate School of International Relations at the International University of Japan, Niigata, Japan. He has published widely on Russian policy toward the Asia Pacific region as well as on Asia Pacific security issues. His recent publications include “Oil and Territory in Putin’s Relations with China and Japan,” which appeared in the Pacific Review in September 2006, and “Russia and Southeast Asia: A New Relationship,” which was published in Contemporary Southeast Asia in August 2006. His book entitled Asia Pacific Security: Values and Identity was published by Routledge in 2004. Stephan Haggard is the Lawrence and Sallye Krause Professor at the Graduate School of International Relations and Pacific Studies at the University of California, San Diego. He is the author of Pathways from the Periphery: the Political Economy of Growth in the Newly Industrializing Countries (1990) and The Political Economy of the Asian Financial Crisis (2000). He is the coauthor with Robert Kaufman of The Political Economy of Democratic Transitions (1995) and Democracy, Development, and Welfare States: Latin America, East Asia, and Eastern Europe (2008). He is the co-author with Marcus Noland of Famine in North Korea: Markets, Aid, and Reform (2007). David C. Kang is Professor of International Relations and Business at the University of Southern California. Kang is author of China Rising: Peace, Power, and Order in East Asia (Columbia University Press, 2007). He has also written Crony Capitalism: Corruption and Development in South Korea and the Philippines (Cambridge University Press, 2002), and Nuclear North Korea: A Debate on Engagement Strategies (co-authored with Victor Cha) (Columbia University Press, 2003). He has published numerous scholarly articles in journals such as International Organization and International Security, as well as opinion pieces in the New York Times, the Financial Times, the Washington Post, the Los Angeles Times, and numerous Korean and Chinese newspapers. Kang is a member of the editorial boards of Political Science Quarterly, Asia Policy, IRI Review, Business and Politics, and the Journal of International Business Education. Professor Kang has been a visiting professor at Stanford University, Yale University, and Korea University. He received an AB with honors from Stanford University and his PhD from Berkeley. Eun Mee Kim is Professor of the Graduate School of International Studies, and director of the Global Cooperation Center at Ewha Womans University. She has served as Dean of the Graduate School of International Studies and the International Education Institute at Ewha. Before coming to Ewha she

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served as the Director of Graduate Studies and Associate Professor of Sociology at the University of Southern California. Her publications include, The Sociology of the Economic Crisis: Transformation of the Developmental State and Business Group Networks (with Dukjin Chang and Mark Granovetter, Seoul National University Press, 2005), Big Business, Strong State: Collusion and Conflict in South Korean Development, 1960–1990 (State University of New York Press, 1997), and an edited volume, The Four Asian Tigers: Economic Development and the Global Political Economy (Academic Press, 1998). The Sociology of Economic Crisis received the National Academy of Sciences’ 2006 Book Award in Basic Sciences. Kim’s research focuses on political and economic development in East Asia and South Korea, and in particular, the state, the chaebol, and the relations between capitalist development and democratization. Her most recent research focuses on foreign direct investment, official development assistance policy, and multiculturalism. Sung Chull Kim is Professor of Northeast Asian studies at the Hiroshima Peace Institute. Before joining the Institute in 2003, he worked at the Korea Institute for National Unification and taught at the University of Wisconsin-Madison as a visiting professor. His research focuses on Korean affairs and international relations in Northeast Asia; he has written widely on transitions in Asian socialist systems, domestic-regional linkages, democratic transition, and critical political theory. Recently he authored North Korea under Kim Jong Il: From Consolidation to Systemic Dissonance (State University of New York Press, 2006) and co-edited with Edward Friedman Regional Cooperation and Its Enemies in Northeast Asia: The Impact of Domestic Forces (Routledge, 2006). He has also contributed a number of articles in journals including Systems Research and Behavioral Science and Communist Studies and Transition Politics. He is the recipient of many academic honors and grants, including the award from the Korea Research Council for Humanities and Social Sciences (2004) and the Grant-in-Aid for Scientific Research from the Japan Society for the Promotion of Science (2004–07, 09–14). Yooyeon Noh is Researcher at Korea Institute for International Policy. Her recent research focuses on East Asian economic cooperation, and in particular, China-Japan-Korea FTA and East Asian FTA. Her writings have appeared in International Studies Review and China Report. Noh received a BA in Economics and International Relations from Lehigh University and an MA in International Trade from the Graduate School of International Studies at Ewha Womans University. Marcus Noland is Senior Fellow at the Peter G. Peterson Institute for International Economics. In the past he has written extensively on the economies of Japan, Korea, and China, and is unique among American economists in

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having devoted serious scholarly effort to the problems of North Korea and the prospects for Korean unification. He won the 2000–01 Ohira Masayoshi Award for his book Avoiding the Apocalypse: The Future of the Two Koreas (2000). Also, he is the author of Korea after Kim Jong-il (2004), Pacific Basin Developing Countries: Prospects for the Future (1990); co-author of The Arab Economies in a Changing World (2007), Famine in North Korea: Markets, Aid, and Reform (Columbia University Press, 2007), Industrial Policy in an Era of Globalization: Lessons From Asia (2003), No More Bashing: Building a New Japan-United States Economic Relationship (2001), Global Economic Effects of the Asian Currency Devaluations (1998), Reconcilable Differences? United States-Japan Economic Conflict (with C. Fred Bergsten, 1993), and Japan in the World Economy (with Bela Balassa, 1988); co-editor of Pacific Dynamism and the International Economic System (1993); and editor of Economic Integration of the Korean Peninsula (1998). Edward P. Reed is currently the Korea Representative of The Asia Foundation where he manages programs with Korean partners focusing on U.S.-Korean understanding, women’s empowerment, North Korean economic development, and Korea’s relationship with less developed Asian countries. Prior to this position, he served as Associate Director of the Center for East Asian Studies at the University of Wisconsin in Madison (2000–04), where he also taught courses on East Asian civilization and modern Korean history. He spent five years in Korea in the 1970s, first as a Peace Corps Volunteer (1970–73) and later as a Fulbright Researcher at Seoul National University (1977–78). He received a master’s degree in agricultural economics and a doctorate in development studies from the University of WisconsinMadison. As representative of the American Friends Service Committee (the Quakers), he led a program of engagement with North Korea beginning in 1991. From 1997 to 2000, he was country director for North Korea for World Vision International. Reed has authored a number of articles on North Korean agricultural rehabilitation and humanitarian aid. Fei-Ling Wang is Professor of International Affairs at the Sam Nunn School of International Affairs, Georgia Institute of Technology. His expertise is on comparative and international political economy, U.S.-East Asian relations, and East Asia and China studies. Wang has published six books (two co-edited) in two languages, of which the most recent one is Organization through Division and Exclusion: China’s Hukou System (Stanford University Press, 2005). He has also published numerous book chapters, journal articles, and reports in four languages. He is currently working on the political economy of East Asia. Before coming to Georgia Tech, Wang taught at the U.S. Military Academy (West Point). He has been a Senior Visiting Fellow of the East Asian Institute at the National University of Singapore, an

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adjunct/honorary professor of the Renmin University of China and Anhui Normal University in China, a visiting fellow at the University of Tokyo in Japan, and a Fulbright Professor in Yonsei University in Korea. He has had grants from several U.S. and foreign sources including an International Affairs Fellowship from the Council on Foreign Relations for the year of 2005–06. He received his PhD from the University of Pennsylvania.

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INDEX

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INDEX

Abe Shinzo, 74, 82, 87, 88, 91, 93. See also Japan-North Korea relations anti-Americanism, 8, 32, 33, 34, 157–158. See also U.S.-South Korea relations anti-imperialism, 8 Arms Control and Disarmament Agency, 123 Asian financial crisis, 135, 150, 151, 155, 181 Aso Taro, 74, 91, 93 Association of Families of Victims Kidnapped by North Korea, 77 Axelrod, Robert, 6 Banco Delta Asia (in Macau), 11, 14, 25, 86, 91, 111, 112, 114, 121, 125, 139, 140, 157, 237. See also U.S.-North Korea relations Bolton, John R., 2 Bush, George H. W., 6 Bush, George W. (or Bush administration), 2, 35, 100, 101, 234, 239, 245; axis of evil, 11, 30, 157; on abduction issue, 90; regime change, 239 Cha, Victor, 2 chaebol, 151, 154–155, 156 Cheney, Dick, 2 Chen Shui-Bian, 54 China: 3-P (Preservation, Prosperity, and Power), 51, 52; Communist Party of, 49, 59; foreign policy, 47, 48; human rights, 53; multilateral diplomacy, 48; nationalism, 50;

People’s Liberation Army, 51; policy toward Korean peninsula, 56–59, 65, 66; pro-status quo policy, 47, 50, 52; rise of, 50; Six-Party Talks and, 54, 57, 60; Taiwan issue, 48, 59; trade with Middle East, 51 China-Japan relations, 15, 49 China-North Korea relations, 55–56, 75; aid, 56; economic relations, 119, 137; increase in commercial trade, 129, 140; investment, 134–135; Kim Il Sung’s visit, 75; policy debates in China, 64; trade, 56; unconditional engagement, 9 China-South Korea relations, 55, 61; Northeastern Project (Koguryo history dispute), 62, 64 China-U.S. relations, 15, 48, 51–54, 60; Taiwan issue, 53–54, 65 Choe Su Hon, 236 Chongryon, 80, 84, 89, 126, 129, 180. See also Japan-North Korea relations Chosen Soren. See Chongryon Chun Doo Hwan, 149, 180, 229 Chung Ju Young, 130, 155 Chung Mong Hun, 132; meeting with Kim Jong Il, 156 Citizens Council for the Promotion of Japan-DPRK Normalization, 79 civil society, 199–200, 211 Clinton, Bill (or Clinton administration), 36, 102, 104, 234 coercion: tools of, 4 complete, verifiable, and irreversible dismantlement (CVID), 23, 101, 107, 112

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262

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conditional engagement, 5, 6–7, 10 cross-recognition, 55, 65 Cuba, 37 Cultural Revolution, 37 Dalkombank, 114. See also RussiaNorth Korea relations Demilitarized Zone (DMZ), 31, 37, 183, 202, 239 denuclearization, 1–2, 250 Diet Members Union for the Rapid Rescue of Japanese Kidnapped by North Korea (DUR), 77, 83, 90 domestic coalition: types of, 149. See also engagement ElBaradei, Mohamed, 107 engagement: coalition for, 148, 149–150, 163; collusive coalition, 154; common goals of, 11; common incentives of, 11; controversy over, 2; domestic politics and, 10, 12–13, 250; double-edged policy in, 13, 153, 161; economic interdependence and, 5; effectiveness of, 227; goals of, 10; incentives in, 100, 252; instruments of, 10; logic of, 3, 10; public support for, 161; quid pro quo in, 14, 34; reciprocity in, 253; strategy of, 3–4, 10; types of, 5–7, 10, 101 Eugene Bell Foundation, 204, 210. See also NGOs European Union-North Korea relations, 153 Falun Gong, 53 February 13 Agreement (in 2007). See Six-Party Talks foreign direct investment (FDI), 128, 129, 136; determinants of, 174–175 Frank, Ruediger, 3 Friedberg, Aron, 2 Fukuda Yasuo, 87, 93 Gallucci, Robert, 2 General Association of Korean Residents in Japan. See Chongryon

Geneva Agreed Framework (in 1994), 2, 31, 76, 158, 234–235, 238, 249 Good Neighbors, 204, 209. See also NGOs Gorbachev, Mikhail, 6 grand deal, 7. See also engagement, U.S.-North Korea relations Haass, N, 5 highly enriched uranium (HEU) program, 38, 39, 83, 99, 114, 235, 247, 248 Hill, Christopher R., 23, 110, 247 Hirschman, Albert O., 148 Hong Song Nam, 183 Hu Jintao, 50, 56, 107 humanitarian aid, 6, 128–129, 153, 199 Hwang Chang Yop, 76 Hyundai (or Hyundai Asan), 80, 127, 130, 132, 150, 154, 188, 189, 202; Asia-Pacific Peace Committee and, 130; Kim Yoon Kyu and, 164; Kim Young Sam administration and, 154, 155; remittance scandal, 154, 165 Imjin river, 187–188 International Atomic Energy Agency (IAEA), 25, 99, 107, 113, 235, 237, 246, 248; IAEA Plus, 251 International Federation of Red Cross Societies, 209 International Narcotics Control Strategy Report, 125 Ishihara Shintaro, 84 Ivanov, Igor, 103, 106, 107 Japan-North Korea relations: abduction issue, 15, 76, 77, 78, 80, 86, 90, 91, 92, 94; coercive policy, 9; comfort women issue, 76; history issue, 86; humanitarian aid, 78, 79, 85; Japanese wives’ hometown visits, 77–78; Joint Declaration of Three Parties (WPK, LDP, and JSP), 75; kikokujigyo (repatriation project), 77; Koizumi Junichiro-Kim Jong Il summit (in 2002, 2004), 11, 74,

INDEX

263

80–87, 235; legal provisions, 84, 85, 88, 89, 90; Mangyongbong-92, 86, 88; normalization, 11; normalization talks, 74–80, 91–93; North Koreabashing, 92; opinion poll, 82, 85; Pyongyang Declaration, 81, 85; return of abductees, 84; sanction, 88–91, 123, 139 Japan-South Korea relations: normalization (in 1965), 73, 79 Jiang Zemin, 50 Joint Declaration of the Denuclearization of the Korean Peninsula, 30

Korea Trade-Investment Promotion Agency, 160 Korean Airlines, 229 Korean Council for Reconciliation and Cooperation, 154 Korean division, 65, 73 Korean Peninsula Energy Development Organization (KEDO), 32, 76, 129, 234, 252 Korean Sharing Movement, 203 Korean unification, 55, 57, 59, 152 Korean War, 14, 56, 73, 228 Kozyrev, Andrei, 102

Kaesong Industrial Complex, 127, 147, 150, 156, 161, 162, 163, 165, 174, 179, 184, 187, 188–193, 194, 237, 239. See also Hyundai Kang, David C., 2 Kang Suk Ju, 158 Kelly, James A., 107, 158, 235 Kennan, George, 36 Kim Dae Jung (or Kim administration), 29, 30, 100, 104, 119, 147, 149, 150, 151, 182, 199, 201, 213, 234, 239; Berlin Declaration, 152; Hyundai and, 154–157 Kim Gye Gwan, 23, 86, 109 Kim Il Sung, 75, 231, 232 Kim Jong Il, 83, 86, 102, 104, 108, 111, 232 Kim Young Sam, 30, 31, 150, 156, 200, 201, 235 Kissinger, Henry, 36 Koizumi Junichiro, 80–87, 88 Korea International Trade Association, 160 Korea Land Corporation (KLC), 158, 189. See also Hyundai, Kaesong Industrial Complex Korea NGO Council for Cooperation with North Korea (KNCCK), 203–205 Korea Peace Fund, 251 Korea Tourism Organization (KTO), 127, 132, 158, 188. See also Hyundai, Mt. Kumgang project

Laney, James, 3 Lavrov, Sergei, 109, 112 Lee Myung Bak (or Lee administration), 35, 147, 165, 174, 187, 192, 195, 215, 216, 239 Libya, 247 Lim Dong Won, 234 military-first politics, 8 missile defense, 104 Mochizuki, Mike, 3 Moltz, James, 3 Mt. Kumgang tourism project, 127, 130, 132, 147, 154, 155, 156, 158, 161, 162, 165, 174, 184, 187, 188, 202, 237. See also Hyundai Mt. Paekdu, 186 multilateral engagement, 8, 12; coordination in, 14, 253; triplelevel diplomacy in, 8, 14. See also engagement, Six-Party Talks Murayama Tomiichi, 78 National Association for the Rescue of Japanese Kidnapped by North Korea (NAR), 77, 79, 83, 90 Nincic, Miroslav, 5 nongovernmental organizations (NGOs): accountability, 210; development-type aid, 209, 218; emergency aid, 209; engagement by, 200–207, 214, 216, 218; goals of, 206–207; government subsidy to,

264

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nongovernmental organizations (NGOs) (continued) 203, 216; humanitarian aid, 199, 203–206, 215; inter-Korean summit and, 208; monitoring, 212; North Korean counterpart, 217; public support for, 215; unconditional engagement by, 207. See also South Korea-North Korea relations Nordpolitik, 155 North Korea: arms sales, 123–124; as dynamic actor, 7–9; ballistic missile program, 105; changes in foreign economic relations, 119–121; Confederal Republic of Koryo, 230; counterfeiting, 125; current account deficit, 135; drug trade, 124–125; economy in, 119; famine in, 181, 231; Joint Venture Law (in 1984), 180; missile and nuclear tests (in 2006), 31, 40, 60, 89, 111–114, 120, 139, 147, 150, 213, 236; NGOs in, 211; nuclear crisis, 30, 37, 78, 99; nuclear facilities in, 62, 163; principles of South Korea policy, 227, 240; Taepodong-1, 76, 78; Tepodong-2, 87, 111; trade with Middle East, 122, 124 nuclear proliferation, 10, 39 Obama, Barack (or Obama administration), 3, 39, 52, 239–240 Oberdorfer, Don, 31 O’Hanlon, Michael, 3 One Korea Movement, 202. See also NGOs O’Sullivan, Meghan L., 5 outward foreign direct investment (OFDI), 173, 191, 194; South Korea’s, 175–178; to North Korea, 178–179. See also Kaesong Industrial Complex, Mt. Kumgang tourism project Paek Nam Sun, 109 Paris Peace Accords (in 1973), 7

Park Chung Hee, 31, 73, 149, 229 Perry Initiative (in 1999), 79 plutonium, 38, 247, 248 Poneman, Daniel, 2 Powell, Colin, 234 Pritchard, Jack L., 234 Proliferation Security Initiative (PSI), 83, 124 Putin, Vladimir, 99, 102 Pyongyang Declaration (in 2002), 81. See also Japan-North Korea relations Quinones, Kenneth, 3 Rice, Condoleezza, 52, 109, 112 Roh Moo Hyun (or Roh administration), 29, 30, 100, 110, 147, 149, 162, 199, 235, 237, 239; efficacy of policy, 159; North Korea policy, 157–161; Presidential Committee on Northeast Asian Business Hub, 157; Presidential Committee on Northeast Asian Cooperation Initiative, 157 Roh Tae Woo, 74, 150, 230 Rumsfeld, Donald, 106 Russia: policy toward Asia Pacific, 103–104; territorial dispute with Japan, 103 Russia-North Korea relations: transfer of North Korean bank accounts, 114; Trans Siberian Railway, 105; Treaty of Friendship (in 1961), 102; Treaty of Friendship, Good Neighborly Relations, and Cooperation (in 2000), 103; unconditional engagement, 9; Vladimir Putin-Kim Jong Il summit (in 2001), 105 Russia-South Korea relations, 103 Russian Central Bank, 114 sanction, 4–5, 120, 138, 140, 240. See also Japan-North Korea relations, United Nations Security Council resolution Sato Katsumi, 83. See also NAR

INDEX September 11 terror attacks, 13 Shaplen, Jason, 3 Shevardnadze, Eduard, 75 Shiozaki Yasuhisa, 88 Six-Party Talks: China’s role in, 54, 57, 60; declaration of nuclear program, 26; February 13 Agreement (in 2007), 7, 25, 26, 74, 87, 93, 113, 114, 139, 163, 237, 238, 245, 246, 251; financial and legal responsibilities of, 249; fuel oil aid, 26; institutionalization of, 251; Japanese position in, 84, 91, 94; Joint Statement (in 2005), 12, 25, 86, 110, 246; Korea Peace Fund, 251; member countries of, 1; multilateral regional grouping and, 107; quid pro quo in, 14, 34; RussiaChina consultation in, 108; Russia’s position in 106–111, 115; shutdown of nuclear facilities, 26; staged format in, 14; tension in, 8 Snyder, Jack, 149 Solingen, Etel, 5, 149 Son Key-young, 3 South Africa, 247 South Korea: July 7 Declaration (in 1988); OFDI, 175–179; Law for the Development of Inter-Korean Relations (in 2006), 160, 165; public support for North Korea policy, 161 South Korea-North Korea relations: Basic Agreement (in 1991), 160, 231, 239; buying peace, 147, 152; commission-based processing trade, 181, 184, 192; economic engagement, 152; economic interdependence, 147, 148, 164; economic relations, 15, 130; Four Economic Agreements (in 2003), 160, 163, 164–165, 183; Hallstein Doctrine, 228; humanitarian aid, 34, 139; interdependence, 15; intranational cooperation, 226; July 4 Communiqué (in 1972), 225, 228, 231; Kim Dae Jung-Kim Jong Il

265

summit (in 2000), 136, 152, 178, 186, 201, 202, 225–226, 232, 233; NGOs and, 16, 153; politicized economic relations, 120; public investment, 140; Pyeonghwa Motors, 184; railroad connection, 187; Roh Moo Hyun-Kim Jong Il summit (in 2007), 34, 56, 62, 139, 161, 163, 164, 174, 184, 186, 216, 226, 233, 238, 240; South-North Economic Community, 161; South-North Economic Cooperation Promotion Committee, 187 staged engagement, 7, 101, 114. See also engagement, conditional engagement Status of Forces Agreement, 34 status quo, 113. See also China Sunshine policy, 100, 104, 150, 152, 183, 201, 213, 240; public support for, 162. See also South Korea-North Korea relations Syria, 248 Takuchi Yaeko (Lee Un Hye), 76 Tanaka Hitoshi, 81 Three-Party Talks, 107 Treaty on the Nonproliferation of Nuclear Weapons (NPT), 99, 108, 235, 248 unconditional engagement, 5–6, 10, 101, 207. See also engagement, NGOs United Nations Development Program, 181 United Nations Security Council resolution, 11, 87, 89, 112, 124, 237 United States Forces Korea, 34 U.S.-Japan relations: George W. BushKoizumi Junichiro summit (in 2003), 83 U.S.-North Korea relations, 8–9, 16; big deal, 24–25, 27, 28, 37, 39, 40; conditional engagement, 9; distrust (and antagonism) in, 38, 57, 110;

266

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U.S.-North Korea relations (continued) Early Harvest approach, 23–24, 25–28; normalization of, 11, 14; full engagement, 25–28, 35–40, 41; list of State Sponsors of Terrorism, 14, 25, 246; staged engagement in, 24, 25–28, 41; Trading with the Enemy Act, 41, 246, 249 U.S.-South Korea relations: alliance, 58; difference over North Korea policy, 232–235; George W. BushRoh Moo Hyun summit (in 2006), 30

verification, 1, 249, 251 Vietnam, 36 War on Terror, 11, 52, 83 Wit, Joel, 2 World Development Report, 129 World Drug Report, 125 World Food Program, 201 World Vision, 204, 210. See also NGOs Yeltsin, Boris, 99, 102 Yokota Megumi, 76–77, 85, 87, 90