North Korean Foreign Relations in the Post-Cold War World [1 ed.] 9781614704409, 9781606928066

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Copyright © 2009. Nova Science Publishers, Incorporated. All rights reserved. North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

Copyright © 2009. Nova Science Publishers, Incorporated. All rights reserved. North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

Asian Political, Economic And Security Issues

NORTH KOREAN FOREIGN RELATIONS IN THE POST-COLD WAR WORLD

Copyright © 2009. Nova Science Publishers, Incorporated. All rights reserved.

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North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

ASIAN POLITICAL, ECONOMIC AND SECURITY ISSUES

Copyright © 2009. Nova Science Publishers, Incorporated. All rights reserved.

North Korean Foreign Relations in the Post-Cold War World Lyman R. Rechter 2009 ISBN 978-1-60692-806-6

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

Asian Political, Economic And Security Issues

NORTH KOREAN FOREIGN RELATIONS IN THE POST-COLD WAR WORLD

Copyright © 2009. Nova Science Publishers, Incorporated. All rights reserved.

LYMAN R. RECHTER

Nova Science Publishers, Inc. New York

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

Copyright © 2009 by Nova Science Publishers, Inc.

All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transmitted in any form or by any means: electronic, electrostatic, magnetic, tape, mechanical photocopying, recording or otherwise without the written permission of the Publisher. For permission to use material from this book please contact us: Telephone 631-231-7269; Fax 631-231-8175 Web Site: http://www.novapublishers.com NOTICE TO THE READER The Publisher has taken reasonable care in the preparation of this book, but makes no expressed or implied warranty of any kind and assumes no responsibility for any errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of information contained in this book. The Publisher shall not be liable for any special, consequential, or exemplary damages resulting, in whole or in part, from the readers’ use of, or reliance upon, this material.

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ISBN: 978-1-61470-440-9 (eBook)

Published by Nova Science Publishers, Inc.    New York

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

CONTENTS Preface

vii

Chapter 1

North Korean Foreign Relations in the Post–Cold War World Samuel S. Kim

1

Chapter 2

The North Korean Economy: Leverage and Policy Analysis Dick K. Nanto and Emma Chanlett-Avery

63

Chapter 3

North Korea’s Abduction of Japanese Citizens and the Six-Party Talks Emma Chanlett-Avery

Chapter 4

Briefing and Hearing before the Committee on Foreign Affairs, House of Representatives, One Hundred Tenth Congress, First Session

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Index

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

119

127 173

Copyright © 2009. Nova Science Publishers, Incorporated. All rights reserved. North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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PREFACE The starting premise of this book is that for all the uniqueness of the regime and its putative political autonomy, post–Kim Il Sung North Korea has been subject to the same external pressures and dynamics that are inherent in an increasingly interdependent and interactive world. The foreign relations that define the place of North Korea in the international community today are the result of the trajectories that Pyongyang has chosen to take—or was forced to take—given its national interests and politics. In addition, the choices of the North Korean state are constrained by the international environment in which they interact, given its location at the center of Northeast Asian geopolitics in which the interests of the Big Four (China, Russia, Japan, and the United States) inevitably compete, clash, mesh, coincide, etc., as those nations pursue their course in the region. North Korea per se is seldom of great importance to any of the Big Four, but its significance is closely tied to and shaped by the overall foreign policy goals of each of the Big Four Plus One (South Korea). Thus North Korea is seen merely as part of the problem or part of the solution for Northeast Asia. Chapter 1 - Any attempt to understand North Korean foreign relations in the post–Cold War world is to be confronted with a genuine puzzle of both real-world and theoretical significance. On the one hand, in the post–Cold War era North Korea—officially known as the Democratic People’s Republic of Korea (DPRK) —has been seen by many as a failed state on the verge of explosion or implosion. On the other hand, not only has North Korea survived, despite a rapid succession of external shocks—the crumbling of the Berlin Wall, the end of both the Cold War and superpower rivalry, and the demise of the Soviet Union—all on top of a series of seemingly fatal internal woes, including spreading famine, deepening socialist alienation, and the death of its founder, the “eternal president” Kim Il Sung. But with its nuclear and missile brinkmanship diplomacy, it has become a focus of regional and global prime-time coverage. Chapter 2 - North Korea’s dire economic straits provides one of the few levers to move the Democratic Peoples Republic of Korea (DPRK) or North Korea to cooperate in attempts by the United States, China, South Korea, Japan, and Russia to halt and dismantle its nuclear program. These five countries plus North Korea comprise the “six parties” who are engaged in talks, currently restarted, to resolve issues raised by the DPRK’s development of a nuclear weapon. This chapter provides an overview of the North Korean economy, its external economic relations, reforms, and U.S. policy options.

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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Preface

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Chapter 3 - The admission by North Korea in 2002 that it abducted several Japanese nationals — most of them nearly 30 years ago — continues to affect significantly the SixParty Talks on North Korea’s nuclear weapons program. This chapter provides background information on the abductee issue, summarizes its effect on Japanese politics, analyzes its impact on U.S.-Japan relations, and assesses its regional implications. Congress has indicated considerable interest in the abductions issue. The North Korean Human Rights Act (P.L. 108333) includes a sense of the Congress that non-humanitarian aid be contingent on North Korean progress in accounting for the Japanese abductees. A House hearing in April 2006 focused on North Korea’s abductions of foreign citizens, with testimony from former abductees and their relatives. Some Members of Congress have sponsored legislation (S.Res. 399 and H.R. 3650) that support Japan’s call for settlement of the abductions controversy before North Korea is removed from the U.S. state sponsors of terrorism list. Chapter 4 - The committee met, pursuant to notice, at 1:32 p.m., in room 2172, Rayburn House Office Building, Hon. Tom Lantos (chairman of the committee) presiding.

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

In: North Korean Foreign Relations in the Post-Cold War World ISBN 978-1-60692-806-6 Author: Lyman R. Rechter © 2009 Nova Science Publishers, Inc.

Chapter 1

NORTH KOREAN FOREIGN RELATIONS IN THE POST–COLD WAR WORLD ∗

Samuel S. Kim

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FOREWORD North Korea’s foreign relations are a blend of contradiction and complexity. They start from the incongruity between Pyongyang’s highly touted policy of juche, or self-reliance, and North Korea’s extended and heavy reliance on foreign aid and assistance over the 6 decades of its existence. This aid—both military and economic—in the first 4 decades came from China, the Soviet Union, and communist bloc states; in the past 2 decades, this aid has come from countries including China, South Korea, and the United States. In this monograph, Dr. Samuel Kim examines North Korea’s foreign relations with China, Russia, Japan, the United States, and South Korea during the post-Cold War era. He argues that central to understanding North Korea’s international behavior in the 21st century is the extent to which the policies of the United States have shaped that behavior. Although some readers may not agree with all of Dr. Kim’s interpretations and assessments, they nevertheless will find his analysis simulating and extremely informative. This publication is the fifth in a series titled “Demystifying North Korea,” the products of a project directed by Dr. Andrew Scobell. The first monograph, North Korea’s Strategic Intentions, written Dr. Scobell, was published in July 2005. The second monograph, Kim Jong Il and North Korea: The Leader and the System, also written by Dr. Scobell, appeared in March 2006. The third monograph, North Korean Civil-Military Trends: Military-First Politics to a Point, written by Mr. Ken Gause, appeared in October 2006. The fourth monograph, North Korea’s Military Conventional and Unconventional Military Capabilities and Intentions (forthcoming March 2007), was written by Captain John Sanford (USN) and Dr. Scobell. Future monographs will examine North Korea’s economy and assess future

∗

This is an edited, excerpted and augmented edition of a U.S. Government publication.

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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Samuel S. Kim

scenarios. The Strategic Studies Institute is pleased to make this monograph publicly available. Douglas C. Lovelace, JR. Director Strategic Studies Institute

BIOGRAPHICAL SKETCH OF THE AUTHOR SAMUEL S. KIM is an adjunct professor of political science and senior research scholar at the Weatherhead East Asian Institute, Columbia University, New York. He previously taught at the Foreign Affairs Institute, Beijing, China, as a Fulbright professor (1985–86); and at the Woodrow Wilson School of Public and International Affairs, Princeton University, Princeton, New Jersey (1986–93). Dr. Kim is the author or editor of 22 books on East Asian international relations and world order studies, including his most recent publications, The International Relations of Northeast Asia (editor; Rowman & Littlefield, 2004) and The Two Koreas and the Great Powers (Cambridge University Press, 2006). He has published more than 150 articles in edited volumes and leading international relations journals, including American Journal of International Law, International Interactions, International Organization, Journal of Peace Research, World Politics, World Policy Journal; Asian Survey; Asian Perspective; China Quarterly; and Journal of East Asian Studies. Dr. Kim holds an M.I.A. and Ph.D. from Columbia University.

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ABSTRACT Any attempt to understand North Korean foreign relations in the post–Cold War world is to be confronted with a genuine puzzle of both real-world and theoretical significance. On the one hand, in the post–Cold War era North Korea—officially known as the Democratic People’s Republic of Korea (DPRK) —has been seen by many as a failed state on the verge of explosion or implosion. On the other hand, not only has North Korea survived, despite a rapid succession of external shocks—the crumbling of the Berlin Wall, the end of both the Cold War and superpower rivalry, and the demise of the Soviet Union—all on top of a series of seemingly fatal internal woes, including spreading famine, deepening socialist alienation, and the death of its founder, the “eternal president” Kim Il Sung. But with its nuclear and missile brinkmanship diplomacy, it has become a focus of regional and global prime-time coverage. Paradoxically, Pyongyang seems to have turned its weakness into strength by playing its “collapse card,” driving home the point that it is anything but a Fourth World banana republic that would disappear quietly without a big fight or a huge mess, a mess that no outside neighboring power would be willing or able to clean up. In fact, not only has North Korea, the weakest of the six main actors in the region, continued to exist, but it has also catapulted itself to the position of primary driver of Northeast Asian geopolitics through its strategic use of nuclear brinkmanship diplomacy. From this transformed geopolitical landscape emerges the greatest irony of the region: today, in the post–Cold War world, North Korea seems to have a more secure sovereignty itself, while posing greater security risks to its neighbors, than has ever been the case in recent history.

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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North Korean Foreign Relations in the Post–Cold War World

3

The starting premise of this monograph is that for all the uniqueness of the regime and its putative political autonomy, post–Kim Il Sung North Korea has been subject to the same external pressures and dynamics that are inherent in an increasingly interdependent and interactive world. The foreign relations that define the place of North Korea in the international community today are the result of the trajectories that Pyongyang has chosen to take—or was forced to take—given its national interests and politics. In addition, the choices of the North Korean state are constrained by the international environment in which they interact, given its location at the center of Northeast Asian geopolitics in which the interests of the Big Four (China, Russia, Japan, and the United States) inevitably compete, clash, mesh, coincide, etc., as those nations pursue their course in the region. North Korea per se is seldom of great importance to any of the Big Four, but its significance is closely tied to and shaped by the overall foreign policy goals of each of the Big Four Plus One (South Korea). Thus North Korea is seen merely as part of the problem or part of the solution for Northeast Asia. On the basis of historical and comparative analysis of the conduct of North Korean foreign policy, especially the turbulent relations with the Big Four plus the relationship with South Korea, the main objective here is to track, explain, and assess North Korea’s foreign policy behavior in the post–Cold War and post–Kim Il Sung era, using a behavior-centered approach. What is most striking about post–Cold War North Korean foreign policy is not the centrality of the Big Four but rather the extent to which the United States has figured in the major changes and shifts in Pyongyang’s international behavior. North Korea has sought and found a new troika of life-supporting geopolitical patrons in China, South Korea, and Russia, and also a new pair of life-supporting geoeconomic patrons in China and South Korea, even as America’s dominant perception of North Korea has shifted significantly from that of a poor nation in need of a life-support system to that of an aggressive nation representing a mortal threat. As if in fear of the DPRK’s “tyranny of proximity,” however, all three of North Korea’s contiguous neighbors—China, Russia, and South Korea—have tended to be reluctant to support Washington’s hard-line strategy. Although the future of North Korea is never clear, the way the outside world— especially the Big Four plus Seoul—responds to Pyongyang is closely keyed to the way North Korea responds to the outside world. North Korea’s future is malleable rather than rigidly predetermined. This nondeterministic image of the future of the post–Kim Il Sung system opens up room for the outside world to use whatever leverage it might have to nudge North Korean leaders toward opting for a particular future scenario over another less benign in the coming years.

INTRODUCTION To understand North Korean foreign relations in the post–Cold War world is to be confronted with a genuine puzzle of both real-world . On the one hand, in the post–Cold War era North Korea—officially known as the Democratic People’s Republic of Korea (DPRK) — has been seen by many as a failed state on the verge of explosion or implosion. This dire assessment stems from the troublesome fact that the country has encountered a rapid succession of external shocks—the crumbling of the Berlin Wall, the end of both the Cold War and superpower rivalry, the demise of the Soviet Union and international communism, Moscow-Seoul normalization, and Beijing-Seoul normalization—on top of a series of internal woes, including the death of its founder, the “eternal president” Kim Il Sung, a downward spiral of industrial output, food/energy/ hard currency shortages, shrinking trade, and deepen-

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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4

Samuel S. Kim

ing systemic dissonance, with the resulting famine killing at least 3–5 percent of the population in the latter half of the 1990s. Thus for the first time since the Korean War, the question of the future of North Korea— whether it will survive or collapse, slowly or suddenly—has prompted a flurry of debates and has provoked many on-the-fly pundits and soothsayers of one kind or another in the United States. Many of these predicted that in the wake of Kim Il Sung’s death, the DPRK would collapse within 6 months; or that in less than 3 years, Korea would have a German-style reunification by absorption. The popularity of this “collapsist” scenario also has been evident in the policy communities of some of the neighboring states. In 1994 and 1995, for example, South Korean President Kim Young Sam jumped on the collapsist bandwagon when he depicted North Korea as a “broken airplane” headed for a crash landing that would be followed by a quick Korean reunification. The specter of collapse has even prompted behindthe-scenes efforts by the U.S. Department of Defense (DoD) to coordinate contingency planning with South Korean and Japanese allies. At a summit meeting held on Cheju Island in April 1996, leaders of South Korea and the United States jointly agreed to promote a twoplus-two formula, the Four-Party Peace Talks, even as they privately predicted that the collapse in the North could come as soon as 2 or 3 years. [1] Such endgame speculation on the future of post–Kim Il Sung North Korea has become a favorite diplomatic sport. [2] At the turn of the new millennium, which many predicted North Korea would not survive to see, not only does the socialist “hermit kingdom” still exist, but with its nuclear and missile brinkmanship diplomacy, it has become a focus of regional and global prime- time coverage. The new consensus in South Korean and American intelligence communities in early 2000 was that North Korea would survive at least until 2015. [3] Paradoxically, Pyongyang seems to have turned its weakness into strength by playing its “collapse card,” driving home that it is anything but a Fourth World banana republic that would disappear quietly without a big fight or a huge mess, a mess that no outside neighboring power would be willing or able to clean up. In addition, North Korea has catapulted itself into the position of a primary driver of Northeast Asian geopolitics through its nuclear diplomacy. Thus emerges the greatest irony of the region: today, in the post–Cold War world, North Korea seems both to enjoy a more secure sovereignty and pose greater security risks to its neighbors than has ever been the case in recent history. The premise of this monograph is that for all its uniqueness as a state and its putative political autonomy, post–Kim Il Sung North Korea has been subject to the same external pressures and dynamics that are inherent in an increasingly interdependent and interactive world. The foreign relations that define the place of North Korea in the international community today are the result of trajectories that Pyongyang has chosen to take—or was forced to take—given its national interests and politics. In addition, the choices of the North Korean state are constrained by the international environment in which they interact, given its location at the center of Northeast Asian (NEA) geopolitics in which the interests of the Big Four inevitably compete, clash, mesh, etc., with each other in various issue areas as these nations pursue their self-determined courses in the region. North Korea, per se, is seldom of great importance to any of the Big Four. Its importance is closely keyed to and shaped by the overall foreign policy goals of each of the Big Four. North Korea is thus seen merely as part of the problem or part of the solution for Northeast Asia.

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

North Korean Foreign Relations in the Post–Cold War World

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Rather than examining North Korean foreign relations strictly in the material terms of strategic state interests, balance of power, nuclear arsenals, and conventional force capabilities, it is important to question how instances of conflict and cooperation might be redefined in terms of conflicting and commensurable identities. Traditional realist national security approaches cannot escape the reactive (and self-fulfilling) consequences of a state’s security behavior for the behavior of its adversary. The issue of North Korea’s nuclear program can never be settled without addressing the country’s legitimate security needs and fears in strategically credible ways. [4] This is not to say, however, that force ratios and trade levels do not matter, but rather that the contours of North Korean foreign relations are shaped by far more fundamental considerations. This monograph consists of four sections. The first depicts in broad strokes sui generis regional (“near abroad”) characteristics for a contextual analysis of North Korean foreign relations in the post–Cold War era. The second examines the complex interplay of global, regional, and national forces that have influenced and shaped the changing relational patterns between North Korea and the Big Four Plus One. The third assesses Pyongyang’s survival strategy in both the security and economic domains. Finally, the fourth briefly addresses the future prospects of North Korea’s relations with the Big Four Plus One.

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THE “NEAR ABROAD” ENVIRONMENT, OLD AND NEW In these early years of the new millennium, there is something both very old and very new in the regional security complex surrounding the Korean peninsula. What remains unchanged and unchangeable is the geographical location of North Korea, which is tightly surrounded and squeezed by no less than five countries—the Big Four and the southern rival, South Korea (the “Big Four plus One”). As Jules Cambon wrote in 1935, “The geographical position of a nation is the principal factor conditioning its foreign policy—the principal reason why it must have a foreign policy at all.” [5] Of course, geography matters in the shaping of any state’s foreign policy, but this is especially true for the foreign policies of the two Koreas and their three neighboring powers. A glance at the map and a whiff of the geopolitical smoke from the latest (second) U.S.– DPRK nuclear standoff suggest why Northest Asia (NEA) is one of the most important yet most volatile regions of the world. When it comes to the dream of a Eurasian “Iron Silk Road,” North Korea’s hub position makes China, Russia, South Korea, and even Japan more receptive to upgrading its dilapidated transportation infrastructure. It is hardly surprising, then, that each of the Big Four has come to regard the Korean peninsula as the strategic pivot point of NEA security and therefore as falling within its own geostrategic ambit. [6] Indeed, North Korea’s unique place in the geopolitics of NEA remains at once a blessing, a curse, and a Rorschach test. The world’s heaviest concentration of military and economic capabilities lies in this region: the world’s three largest nuclear weapon states (the United States, Russia, and China), one nuclear ambiguous state (North Korea), three threshold nuclear weapon states (Japan, South Korea, and Taiwan), the world’s three largest economies on a purchasing power parity basis (the United States, China, and Japan), [7] and East Asia’s three largest economies (Japan, China, and South Korea). It was in NEA that the Cold War turned into a hot war, and

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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Samuel S. Kim

the region, lacking any nonaligned states, was more involved in Cold War politics than any other region or subregion. Even with the end of the Cold War and superpower rivalry, the region is still distinguished by continuing, if somewhat anachronistic, Cold War alliance systems linking the two Koreas, Japan, China, and the United States in a bilateralized regional security complex. NEA is more than a geographical entity. Although geographical proximity is important, defining East Asia or especially NEA in these terms alone is problematic because any strictly geographical approach would obscure rather than reveal the critical role of the United States in Northeast Asian international relations. [8] NEA is considered to be vitally important to America’s security and economic interests, and the U.S. role remains a crucial factor (perhaps the most crucial) in the regional geostrategic and geo-economic equations. The United States, by dint of its deep interest and involvement in Northeast Asian geopolitics and geoeconomics, deploys some 100,000 troops in the Asia- Pacific region, concentrated mostly in Japan and South Korea. [9] As this might suggest, the divide in NEA between regional and global politics is blurred substantially, if not completely erased, for several reasons. First, the region is the “strategic home” of three of the five permanent members of the United Nations Security Council (UNSC), which are also three of the five original nuclear weapon states shielded by the twotiered, discriminatory Non-Proliferation Treaty (NPT) regime. Second, Japan, Greater China, and South Korea alone accounted for about 25 percent of the world gross domestic product (GDP) in 2000. As of mid-2005, NEA is home to the world’s four largest holders of foreign exchange reserves: Japan ($825.0 billion), China ($711.0 billion), Taiwan ($253.6 billion), and South Korea ($205.7 billion). [10] In addition, Japan remains the world’s second largest financial contributor to the United Nations (UN) and its associated specialized agencies. Finally, the rapid rise of China’s economic power and related military power has given rise to many debates among specialists and policymakers over how much influence Beijing actually exerts in NEA and what this means for U.S. interests as well as an emerging Northeast Asian order. [11] The structural impact of power transition and globalization seems to have accentuated the uncertainties and complexities of great power politics in the region. The centripetal forces of increasing economic interaction and interdependence are straining against the centrifugal forces tending toward protection of national identity and sovereignty, not to mention the widely differing notions of conflict management in NEA. In the absence of superpower conflict, the foreign policies of the two Koreas and the Big Four are subject to competing pressures, especially the twin pressures of globalization from above and localization from below. All are experiencing wrenching national identity difficulties in adjusting to post– Cold War realignments, and all are in flux regarding their national identities and how these relate to the region as a whole. Thus policymakers in Pyongyang—no less than scholars and policymakers elsewhere— are challenged by a unique and complex cocktail of regional characteristics: high capability, abiding animus, deep albeit differentiated entanglement of the Big Four in Korean affairs, North Korea’s recent emergence as a nuclear loose cannon, the absence of multilateral security institutions, the rise of America’s unilateral triumphalism, growing economic integration and regionalization, and the resulting uncertainties and unpredictability in the international politics of NEA. Regional cooperation to alleviate the security dilemma or to establish a viable security community is not impossible, but it is more difficult to accomplish

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North Korean Foreign Relations in the Post–Cold War World

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when the major regional actors are working under the long shadows of historical enmities and contested political identities.

NORTH KOREA AND THE BIG FOUR PLUS ONE

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China and North Korea Without a doubt, China holds greater importance in North Korea’s foreign policy than the DPRK holds in Chinese foreign policy. China’s potential trump cards in Korean affairs are legion, including demographic weight as the world’s most populous country, territorial size and contiguity, military power as the world’s third-largest nuclear weapons state after the United States and Russia, veto power in the UNSC, new market power as the world’s fastest growing economy, and the traditional Confucian cultural influence with strong historical roots. Moreover, in describing relations between the People’s Republic of China (PRC or China) and the Democratic People’s Republic of Korea, the term “bilateral” is somewhat of a misnomer. Since the end of the Cold War and the demise of global socialist ideology, SinoNorth Korean relations have developed with a constant eye toward both South Korea (ROK or Republic of Korea) and the United States. While the relationship between Beijing and Pyongyang remains a special one, its unique characteristics are now defined by China’s use of its connections with the DPRK for the maintenance of domestic and “near abroad” stability rather than for any grander ambitions. Political and Diplomatic Interaction. During the Cold War, North Korea’s geostrategic importance and its proximity to China and the Soviet Union made it easier for Pyongyang to cope with the twin abandonment/ entrapment security dilemmas. With the rise of the Sino– Soviet dispute in the late 1950s and the eruption of open conflict in the 1960s, Kim Il Sung made a virtue of necessity by manipulating his country’s strategic relations with Moscow and Beijing in a self-serving manner. He took sides when necessary on particular issues, always attempting to extract maximum payoffs in economic, technical, and military aid, but never completely casting his lot with one over the other. In the 1980s, however, the PRC and DPRK were on separate and less entangled trajectories. If the central challenge of post-Mao Chinese foreign policy was how to make the world congenial for its resurgent modernization drive via reform and opening to the capitalist world system, then Pyongyang’s top priority, at least in the 1980s, was to contain, isolate, and destabilize South Korea in the seemingly endless pursuit of absolute one-nation legitimation and Korean reunification on its own terms. The 1983 Rangoon bombing (in which 17 members of South Korean President Chun Doo Hwan’s delegation were killed) and the 1987 mid-air sabotage of a Korean Air jetliner (which claimed the lives of all 115 people aboard) brought into sharp relief the vicious circle of the politics of competitive legitimation and delegitimation on the Korean peninsula. During the long Deng decade, Beijing’s Korea policy evolved through several phases— from the familiar one-Korea (pro-Pyongyang) policy, to a one-Korea de jure/two-Koreas de facto policy, and finally to a policy of two Koreas de facto and de jure. The decision to normalize relations with South Korea, finalized in August 1992, was the culmination of a

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gradual process of balancing and adjusting post-Mao foreign policy to the logic of changing domestic, regional, and global situations. [12] The Sino–ROK normalization was made possible by the mutual acceptance of differences in political identity following China’s longstanding Five Principles of Peaceful Coexistence and Seoul’s Nordpolitik, which called for the improvement of inter- Korean relations as well as South Korea’s relations with socialist countries in conformity with the principles of equality, respect, and mutual prosperity, irrespective of political and ideological differences. Ironically, but not surprisingly, the greater challenge has been to China and the DPRK in adjusting their socialist identities in the post–Cold War (and post-Socialist) world. Perhaps because of the lack of change in Pyongyang’s international course, Beijing did not pursue a truly active geostrategic engagement as part of its approach to the Korean peninsula after the normalization of relations with the ROK. Instead, it more or less followed Deng Xiaoping’s foreign policy axiom of “hiding its light under a bushel,” not placing itself on the front lines of the Korean conflict. While the 1992 two-Koreas decision was arguably the most significant reorientation of post–Cold War Chinese foreign policy in the Northeast Asian region, it did not signal a greater Chinese conflict management role in regional or global politics. China’s hands-off approach was demonstrated particularly in the 1993–94 U.S.-DPRK nuclear standoff, when Beijing played neither mediator nor peacemaker for fear it might get burned if something went wrong. The Chinese repeated the familiar refrain that “the issue was a direct matter between the DPRK and the three sides—the International Atomic Energy Agency (IAEA), the United States, and the Republic of Korea.” [13 ] This “who me?” posture reflected a cost-benefit calculus intended to keep the PRC out of harm’s way while still holding both Pyongyang and Seoul within its Sinocentric circle of influence in East Asia. Even after Pyongyang’s alleged confession of the existence of a highly enriched uranium (HEU) program, China persisted in its risk-averse posture toward the nuclear issue on the Korean peninsula. Security Interaction. All of this changed, and changed dramatically, in the heat of the second U.S.-DPRK nu- clear confrontation in early 2003. China suddenly launched an unprecedented flurry of mediation diplomacy. While the idea of a nuclear-free Korean peninsula is important, for the Chinese leadership and most Chinese strategic analysts, the survival of the North Korean regime and the reform of North Korea are China’s greatest challenge and prime objective, respectively. [14] Growing fears of the potential for reckless action by the United States and North Korea as they engage in mutual provocation—which could trigger another war in China’s strategic backyard— have served as the most decisive proximate catalyst for Beijing’s hands-on conflict management diplomacy. There were other catalysts for the shift, including China’s own enhanced geopolitical and economic leverage, the steady rise of regional and global multilateralism in Chinese foreign policy thinking and behavior, and the creeping unilateralism under the Clinton administration that expanded under the Bush administration. In short, the unique confluence of both proximate and underlying factors—greater danger, greater stakes, and greater leverage— explains why Beijing was spurred into action in early 2003. With its conflict management resources, both diplomatic and economic, China has clearly made a heavy investment in prompting the Six-Party process toward a negotiated solution or at the very least in averting its collapse. From the beginning, China’s mediation-cum-conflict management diplomacy required shuttle/ visitation diplomacy—and aid diplomacy—to bring the DPRK to a negotiating table in Beijing. From early 2003 to late 2005, senior Chinese

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officials have stepped up shuttle/visitation diplomacy on a quarterly basis. Moreover, these visits have been conducted at levels senior enough to require meetings with Chairman Kim Jong Il, serving notice to Washington that direct interaction with the Chairman is the shortest way toward progress in the Six-Party process. The Chinese are reported to have made an exceptional effort in the fourth round of talks—the most important and extended round to date—mobilizing a professional work team of about 200 experts from nine departments or bureaus in the Ministry of Foreign Affairs. These diplomats all spent day and night working on successive drafts of a joint statement of principles, pulling together the lowest common denominator among views laid out by the six parties in the behind-the-scenes negotiations, which included an unprecedented half-dozen bilateral meetings between U.S. and North Korean diplomats. [15] Caught in diplomatic gridlock and against the backdrop of being labeled an “outpost of tyranny” by the second-term Bush administration, Pyongyang raised the ante of its brinkmanship with a statement on February 10, 2005, that it had “manufactured nukes for self-defense to cope with the Bush administration’s evermore undisguised policy to isolate and stifle the DPRK” and that it was therefore “compelled to suspend participation in the [Six Party] talks for an indefinite period.” [16] Pyongyang’s decision to rejoin the Six Party talks after a 13-month hiatus can be partially attributed to the synergy of Chinese and South Korean mediation diplomacy aimed at providing a face-saving exit from the trap of mutual U.S.-DPRK creation. This was particularly important in the wake of the Bush administration’s characterization of Kim Jong Il as a “tyrant” and U.S. Secretary of Defense Condoleezza Rice’s labeling of North Korea as an “outpost of tyranny.” Beijing, Seoul, and Moscow have been prodding the Bush administration to stop using this kind of language and to map out detailed economic and security incentives as quid pro quo for North Korea’s nuclear disarmament. The implicit withdrawal of vilifying rhetoric was quite important in Pyongyang, as made evident in an official statement of the DPRK Ministry of Foreign Affairs: … the U.S. side at the contact made between the heads of both delegations in Beijing Saturday clarified that it would recognize the DPRK as a sovereign state, not to invade it, and hold bilateral talks within the framework of the Six Party talks, and the DPRK side interpreted it as a retraction of its remark designating the former as an “outpost of tyranny” and decided to return to the Six Party talks. [17]

The “words for words” and “action for action” approach that North Korea assumed as its negotiating stance and that China inferred as group consensus in the Chairman’s statement at the end of the third round of talks, also provided an incentive for Pyongyang, if not for Washington. China was the most critical factor in achieving a group consensus in the form of the Joint Statement of Principles issued by the participants in the fourth round of Six Party talks on September 19, 2005, the first-ever successful outcome of the on-again, off-again multilateral dialogue of more than 2 years. This was a validation of the negotiated approach to the second nuclear standoff on the Korean peninsula that both Pyongyang and Washington have resisted at various times. China also may have played a critical backstage role in persuading Pyongyang to moderate provocative rhetoric or action. China played a further role in downsizing Pyongyang’s demand for a nonaggression treaty, a demand that initially had called for a

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security pledge or guarantee as well as the removal of the DPRK from the U.S. list of terrorist states. However, Chinese persuasive power has had very real limits. China’s efforts to dissuade North Korea from carrying out nuclear or missile tests did not prevent Pyongyang from detonating a nuclear device on October 9, 2006, or launching a Taipodong II (along with six other missiles of different types) on July 5, 2006. In sum, China’s mediation diplomacy since early 2003 has been the primary factor in facilitating and energizing multilateral dialogues among the Northeast Asian states concerned in the nuclear standoff. Whereas in 1994 China wanted the United States and the DPRK to handle their dispute bilaterally, from 2003 to 2005 China succeeded in drawing North Korea into a unique regional, multilateral setting that Pyongyang—as well as Beijing—had previously foresworn in a quest for direct bilateral negotiations with the United States. Economic Interaction. Chinese–North Korean economic relations over the years are notable in several respects. First, Sino-DPRK trade is closely keyed to and determined by turbulent political trajectories. The Chinese percentage of total North Korean foreign trade has fluctuated greatly over the years: (1) 25–60 percent (the absolute value was around U.S.$100 million) in the 1950s; (2) about 30 percent in the 1960s until 1967, after which the ratio declined to around 10 percent in the wake of the Cultural Revolution; (3) increased to about 20 percent since 1973 (to the level of U.S.$300–$600 million); and (4) declined to the 10–20 percent range in the 1980s, although its total value had risen to U.S.$3–$4 billion. In the first post–Cold War decade, the 1990s, the ratio started at 10.1 percent in 1990 but increased dramatically to around 30 percent in 1991 and stayed in this range until 1998, even as its total value began to decline from $899 million in 1993 to $371 million in 1999. Nonetheless, due to the renormalization process underway since 1999, Sino-DPRK trade registered a 32 percent increase in 2000 ($488 million) and a whopping 80 percent increase in the first half of 2001 ($311 million) after 2 years of consecutive decreases in 1998 and 1999. Despite the dramatic increases in total value, the China share declined from 29 percent in 1998 to 20 percent in 2000, only to start rising again, more than tripling from $488 million in 2000 to a new all-time high of just more than $1.58 billion in 2005, demonstrating the paradoxical effect of the second U.S.-DPRK nuclear standoff, which has accelerated Pyongyang’s economic isolation due to the reinforced sanctions by Washington and Tokyo, while deepening North Korea’s dependence on Beijing and Seoul for trade and aid (see Table 1). Table 1. China’s Trade with North Korea, 1990-2005 (Unit: U.S.$ million) Imports from Total North Chinese Trade Percent Change in Year Exports to Balance with North KoreanNorth Korea North Korea KoreanChinese Trade North Korea Chinese Trade 1979 1980 1981 Year 1982 1983

N/A 374 300 Exports to 281 273

N/A 303 231 Imports from 304 254

N/A 677 531 Total North 585 527

N/A +71 +69 Chinese Trade -23 +19

N/A N/A -22% Percent Change in +10% -10%

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Year 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Exports to 226 231 233 277 345 377 358 525 541 602 424 486 497 531 355 329 451 571 467 628 799 1,081

Imports from 272 257 277 236 234 185 125 86 155 297 199 64 68 121 57 42 37 167 271 396 585 499

Total North 498 488 510 513 579 562 483 611 696 899 623 550 565 652 412 371 488 738 738 1,024 1,384 1,580

Chinese Trade -46 -26 -44 +41 +111 +192 +233 +439 +386 +305 +225 +422 +429 +410 +298 +287 +414 +404 +196 +232 +214 +582

11

Percent Change in -6% -2% +5% +1% +13% -3% -14% +27% +14% +29% -31% -12% +3% +15% -37% -10% +32% +51% +0% +39% +35% +14%

Sources: Ministry of Foreign Trade and Economic Relations, People’s Republic of China at www.moftec.gov.cn/moftec/official/html/ statistics_data; 1996 Diplomatic White Paper Ministry of Foreign Affairs and Trade (MOFAT), Republic of Korea (ROK), p. 348; 1997 Diplomatic White Paper, pp. 396 and 400; 1998 Diplomatic White Paper, pp. 481 and 486; 2000 Diplomatic White Paper, p. 496; 2001 Diplomatic White Paper, p. 483; 2002 Diplomatic White Paper, p. 497; available at www.mofat.go.kr.

Second, as Table 1 indicates, North Korea’s trade deficits with China have been chronic and substantial. During the 27 years from 1979 to 2005, the DPRK has enjoyed an annual surplus for only 4 years. Its trade deficit has amounted to a cumulative total of $4.68 billion between 1990 and 2003—imports to the DPRK worth $6.7 billion and exports worth $2.1 billion. The cumulative total of the trade deficits for North Korea amounted to $3.85 billion during the period 1990– 2000, with total imports from China at $5.1 billion and total exports to China only $1.3 billion. North Korea’s trade deficit is not likely to improve for a long time, because it does not have high value products to export and because its primary exportable commodities are losing competitiveness in the Chinese market. In 2005, North Korea’s trade deficit hit an all-time high of $1.1 billion. While China remained North Korea’s largest trade partner in the 1990s in terms of total value, Beijing has allowed Pyongyang to run average annual deficits of $318 million for 1990–1994, $369 million for 1995– 1999, and $423 million for 2000–2005. China’s role in North Korea’s trade would be even larger if barter transactions and aid were factored into

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these figures. In contrast, South Korea’s trade with China in a single year (2004) generated a huge surplus of $20.2 billion. Although the exact amount and terms of China’s aid to North Korea remain unclear, it is generally estimated at one-quarter to one-third of China’s overall foreign aid. By mid-1994, China accounted for about three-quarters of North Korea’s oil and food imports. [18] Whether intentionally or not, Beijing became more deeply involved, playing an increasingly active and, indeed, crucial year-to-year role in the politics of regime survival by providing more aid in a wider variety of forms: direct government-to-government aid, subsidized cross-border trade, and private barter transactions. North Korea’s dependency on China for aid has grown unabated and has intensified even in the face of its hardline policy towards Pyongyang’s rogue state strategy. Recent estimates of China’s aid to North Korea are in the range of 1 million tons of wheat and rice and 500,000 tons of heavy fuel oil per annum, accounting for 70 to 90 percent of North Korea’s fuel imports and about one-third of its total food imports. With the cessation of America’s heavy fuel oil delivery in November 2002, China’s oil aid and exports may now be approaching nearly 100 percent of North Korea’s energy imports. [19] As a way of enticing Pyongyang to the Six Party talks in late August 2003, President Hu Jintao promised Kim Jong II greater economic aid than in previous years. The Chinese government has extended indirect aid by allowing private economic transactions between North Korean and Chinese companies in the border area, despite North Korea’s mounting debt and the bankruptcy of many Chinese companies resulting from North Korean defaults on debts. Despite being Pyongyang’s external life support system, especially since November 2002 when the United States halted monthly delivery of heavy fuel oil, China does not, to its frustration, receive as much North Korean gratitude as it would like nor does it wield as much leverage as Washington would have us believe, precisely because Pyongyang knows that China’s aid is in its own self-interest. As one senior Chinese leader said to a visiting U.S. scholar in the context of expressing China’s opposition to any economic sanctions on North Korea, “We can either send food to North Korea or they will send refugees to us—either way, we feed them. It is more convenient to feed them in North Korea than in China.” [20] Thus Beijing is cautious to a fault for fear of provoking and/or causing collapse in the North by withholding too much aid, thereby precipitating a host of destabilizing social, economic, and political consequences. For the DPRK, the most critical challenge is survival in the post–Cold War, postcommunist world of globalization, and its economic relations with China are motivated by this survival goal. To this end, Pyongyang seeks increasing amounts of aid as an external lifesupport system, hoping to avoid triggering a cataclysmic system collapse. While providing the diplomatic and economic support to the DPRK that was necessary to infuse Kim Jong Il with enough confidence to remain a part of the Six Party process, China also has made it clear to Washington, Seoul, Moscow, and Tokyo that the peaceful coexistence of the two Korean states on the peninsula is now in the common interest of all, in the face of the alternative of having to cope with the turmoil and chaos that would follow a system collapse in Pyongyang. In the face of a growing multifaceted sanctions strategy by Washington and Tokyo in recent years, especially the September 19, 2005, Joint Statement of Principles, Beijing’s multidimensional support for North Korea has been greatly accelerated. Sino-DPRK trade has more than doubled from $738 million in 2002 to $1.6 billion in 2005 with China’s share of

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North Korean foreign trade hitting an all-time high of 40 percent. More significantly, economic ties in various forms of investment are now expanding—from basic industry to mining exploration, drilling in the sea, and various construction projects including a plan to build a new mass-transportation bridge from North Korea’s border city of Sinuiju to Dandong, China, over the Yalu River. Beijing has unmistakably shifted its gears from mere life-support aid to developmental aid in late 2005.

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Russia and North Korea From the late 1950s onward, Kim Il Sung successfully exploited the emerging Sino– Soviet rift, gaining independence from both of the two large socialist states. Moscow and Beijing each tried to offset the other’s influence in North Korea with generous economic and military assistance. For a time, Pyongyang sided with Mao against the former Union of Soviet Socialist Republics (USSR), then tilted toward Moscow in the late 1960s during the years of Mao’s Great Proletarian Cultural Revolution. Thereafter, North Korea adapted adroitly to its two patrons, whose enmity and status competition continued through the 1970s and most of the 1980s. Moscow’s aim was to keep Pyongyang from slipping too close to China; the Soviets did not want a new war attempting to reunify Korea. [21] Soviet diplomatic representatives in Pyongyang became accustomed to finding themselves severely isolated in an inhospitable environment. Regarding influence in Korea, it is likely that Soviet leaders believed they labored under a permanent, built-in disadvantage when compared with the PRC. Nonetheless, because the DPRK proved a useful partner in confronting the United States and insulating against U.S. troops in South Korea, the USSR continued to provide Pyongyang with the technology and products that it requested. But Moscow viewed North Korea as a functional buffer rather than as a reliable ally. [22] Political and Diplomatic Interaction. Moscow’s skewed two-Koreas policy started with a bang in 1990 but ended with a whimper. Ironically, if Moscow was the chief catalyst for transforming the political and strategic landscape of Northeast Asia, including the initiation of mutual recognition and the entry of the two Koreas into the UN, Beijing became the major beneficiary, occupying the pivotal position from which it could exert greater influence over Seoul and Pyongyang. As if to emulate Beijing’s much-touted equidistance policy, since the mid-1990s Moscow has retreated significantly from its skewed posture, moving toward a more balanced policy as a way of reassuring Pyongyang and thus enhancing its leverage and resuming its great-power role in the politics of a divided Korea. When the Kremlin announced in September 1990 that it would normalize relations with Seoul, the DPRK said in a memorandum that normalization would imply an end to the DPRK–USSR alliance and that North Korea would have “no other choice but to take measures to provide for ourselves some weapons for which we have so far relied on the alliance.” [23] The North Koreans even threatened to retaliate against the Soviet Union by supporting Japanese claims to the South Kuril Islands, and they began referring to ROK– USSR relations as “diplomacy purchased by dollars.” [24] Moscow responded by admonishing the DPRK that no matter how hard the USSR tried to help its neighbor, it would be difficult to solve its problems until the confrontation and arms race underway on the

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Korean peninsula ceased and until the North shed its semi- isolation from economic contacts with the majority of developed countries. [25] The political relationship between Moscow and Pyongyang was defined during the Cold War by the 1961 Mutual Defense and Cooperation Treaty. When the Soviet Union dissolved, Russia initially agreed to honor the USSR’s extant treaties and commitments, although they would be subject to renegotiation. Russian President Boris Yeltsin sent a personal envoy to Pyongyang to explain Russia’s policy and to probe North Korea’s reaction. The North Koreans considered the 1961 treaty “outdated.” Not only did Pyongyang embrace termination of the treaty, but North Korea also dismissed Moscow’s reassurances that the Russian nuclear umbrella still covered North Korea, implying a revision of Pyongyang’s concept of national security. [26] What is most striking about Moscow’s relations with Pyongyang, therefore, is not that there were vicissitudes and fluctuations throughout the 1990s— for indeed there were many—but that the downward spiral of Russia-DPRK relations resulting from a series of domestic and external shocks has been reversed and put back on a renormalization track since the mid- 1990s. The period of 1998 to 1999 was a turning point in Moscow’s agonizing reappraisal of its perceived rapidly worsening international environment and the reconstruction of its ruling coalition. The statist balance of political elite interests was shattered by the August 1998 financial crisis in Russia and, more importantly, by the North Atlantic Treaty Organization (NATO)/ U.S. war in Kosovo. [27] The Moscow-Pyongyang renormalization process clearly gained momentum when Vladimir Putin’s vigorous pursuit of realpolitik intersected with Kim Jong Il’s new diplomatic opening to the outside world. In July 2000, Putin became not only the first Kremlin leader ever to visit the neighboring communist country but also the first among the Big Four to make an official state visit to North Korea. A year later in August 2001, Kim Jong Il returned Putin’s visit in a bizarre 6,000-mile train trip across Russia to Moscow that inconvenienced thousands of Russian rail travelers along the way—it took more than a year just to organize it. This was part of Kim Jong Il’s coming-out party, evidenced also in 2000 by a visit to China in May, an inter-Korean summit in June, and a visit to Pyongyang by then U.S. Secretary of State Madeleine Albright in October. President Vladimir Putin’s vigorous personal diplomacy in 2000 and 2001 was a dramatic step not only toward bringing Moscow back into the rapidly changing Korean peninsular equation in order to reassert Russia’s great power identity, but also toward countering troublesome American policies. The United States loomed large in the second PutinKim summit in Moscow. In the DPRK-Russia Moscow Declaration of August 4, 2001, [28] both parties addressed “international” (read “U.S.”) and bilateral issues. Four of the eight points seem designed to send a strong message to the United States: “a just new world order” (point one); the 1972 anti-ballistic missile (ABM) Treaty as a cornerstone of global strategic stability (point two); a Korean reunification process by independent means and without foreign interference (point seven); and the pullout of U.S. forces from South Korea as a “pressing issue,” regarding which Putin expressed his “understanding” (point eight). The remaining points have to do with the promotion of bilateral political and economic cooperation, especially “the plan for building railways linking the north and the south of the Korean peninsula [as well as mention of] Russia and Europe on the principle of the mutual interests recognized in the worldwide practice” (point six).

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This joint declaration was far more muscular and provocative than the June 2000 South– North Joint Declaration, including as it did trenchant attacks against infringement of state sovereignty under the pretext of humanitarianism and against the U.S. Theater Missile Defense (TMD) and National Missile Defense (NMD) programs. The Russian–North Korean summit captured global prime-time and headlines when Putin revealed that the North Korean leader had pledged to eliminate his country’s Taepodong missile program — a key rationale for NMD — if Western countries (meaning the United States) would provide access to rocket boosters for peaceful space research. Putin also managed to put Kim Jong Il’s “satellites for missiles” issue on the agenda of the G-8 summit meeting in Japan. Since these mutual visits, Kim Jong Il has stayed in close touch with Russian representatives in Pyongyang and has made visits to the Russian Far East to examine the implementation of Russian economic programs. [29] In August 2002, Putin and Kim held a third summit in Vladivostok. [30] There, Putin allegedly assured Kim Jong Il that Moscow would not support any U.S. efforts to impose a so-called “Iraqi scenario” on North Korea and that Russia would not join any anti-DPRK international coalition. Moreover, Russia would try to help the DPRK distance itself from the so-called “axis of evil” and to escape its U.S.sponsored international isolation. [31] These commitments are known as the “Putin formula.” In connection with the events in Iraq, the Russian president stated: “In recent times—and there have been many crises recently—Russia has not once permitted itself the luxury of being drawn directly into any of these crises,” and Putin also promised to do everything within his power “to prevent Russia being dragged into the Iraq crisis in any form.” [32] Security Interaction. New North Korean policy toward Russia can best be described as “old wine in new bottles.” It is based on shared geopolitical interests, especially with respect to hardline U.S. policy and the U.S. military presence on the peninsula. It is reinforced by personal chemistry and close ties between Chairman Kim and President Putin, and it is cemented by interlocking institutional networks connecting North Korean and Russian bureaucracies at the central and local levels. [33] A common belief in Russia is that the DPRK is a militarily weak state that faces overwhelmingly powerful opponents and truly must fear for its own survival. Therefore, its efforts are viewed as defensive in nature. In the wake of the NATO-led war in former Yugoslavia, Russians were predicting that it was only a matter of time before the United States took action against North Korea. [34] Needless to say, George W. Bush’s tough policy toward Pyongyang has driven Moscow and Pyongyang toward closer ties. Russian analysts believe that a more robust Russian presence in North Korea could be useful to Pyongyang and to the peace process on the peninsula because reinforced contacts with Russia would help the DPRK feel more self-confident and consequently encourage it to behave in a more pragmatic manner in relations with other states. [35] In general, Russia seeks a multinational arrangement for Korean peace and security, and it supports the notion that Korean questions should be resolved by the Koreans themselves if possible. Russia opposes neither U.S.–North Korean bilateral talks nor four-way talks among the United States, China, and North and South Korea, although the latter configuration makes Moscow feel sidelined. Russia asserts, however, that the United States alone cannot untie the “Korean knot” but must rely on a multilateral approach to creating lasting peace and security in NEA. Russian policymakers believe that Pyongyang is genuinely interested in reform but is isolated and paranoid; they argue that renewed friendship and trust between Russia and

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North Korea will help Pyongyang regain self-confidence and engage South Korea bilaterally in a constructive way, just as in its international relations. [36] Russia was a serious supporter of the Six Party talks on the nuclear standoff. According to Alexander Zhebin, Russia was invited to join the Six Party talks at Pyongyang’s insistence:

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Some observers considered it a foreign-policy “failure” that Russia was not invited to the trilateral meeting in Beijing in April 2003, so when the DPRK decided to ask Russia to take part in the Six Party talks on August 27– 29, 2003, in Beijing, this was welcomed in Russia as “a positive step” with a certain feeling of relief. [37]

At times, however, the Russians oversold their case, as when a deputy foreign minister declared, “Without taking Russia’s interest into account, [resolution of a nuclear crisis] is almost impossible.” [38] Russia has tried to build up its relevance by enhancing its leverage in Pyongyang, mostly by proposing to involve North Korea in its plans to develop a Northeast Asian energy network. North Korea, however, usually detects the transparency of such schemes. The on-again, off-again nuclear talks have allowed Russia to pursue its goal of working with both North and South Korea. In January 2003, South Korean officials asked Moscow to persuade North Korea to rescind its decision to withdraw from the Non-Proliferation Treaty (NPT). Putin sent his deputy foreign minister to Pyongyang to deliver a message to Kim Jong Il on how to resolve the nuclear crisis. The proposed package included nuclear-free status for the Korean peninsula, a security guarantee for the DPRK, and a resumption of humanitarian assistance and economic aid to North Korea. [39] The proposal never got off the ground, and both the United States and the ROK view China as the real key player in terms of influencing the Pyongyang regime. The Three Party and Six Party talks on the nuclear issue all therefore have been held in Beijing. Remembering its exclusion from the 1994 Agreed Framework and from the Korean Energy Development Organization (KEDO), Russia offered to build a nuclear power plant in North Korea as part of an effort to diffuse the crisis, and a Russian power company proposed constructing a power line from Vladivostok to Chongjin. [40] Once the Six Party talks got underway in August 2003, Moscow proposed a package solution in close alignment with Beijing’s approach. Russia’s solution was based on the principles of a stage-by-stage process and parallel synchronized implementation of coordinated measures by the concerned parties. [41] Russian officials have spoken out repeatedly for a peaceful, negotiated resolution of the crisis; they have warned of the dangers of a military solution; they have rejected sanctions or other pressure as counterproductive; and they have opposed referring the North Korean nuclear issue to the UNSC. Russian observers have warned that pressure is likely to backfire by cornering Pyongyang and increasing its sense of insecurity. Moreover, Moscow has volunteered to help provide North Korea with international security guarantees as well as energy assistance. [42] Sensing that its strategic importance to Russia is growing under President Putin, Pyongyang hopes that Russia will be able to assist in solving several of its problems by providing or creating (1) de facto protection against possible military threats from the United States; (2) Russian backing in bargaining with Washington over nuclear and missile matters; (3) U.S. interest in accommodating North Korean demands and requests as a means of countering Russian influence with the DPRK; (4) renewed Russian military aid, including spare parts for existing weapons and hardware as well as new, more technologically advanced

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armaments; (5) Russian participation in the modernization of industrial facilities built by the Soviet Union during the early Cold War period; (6) reliable long-term deliveries of Russian oil and gas; and (7) facilitating cooperation with the DPRK by countries of the former Soviet Union. Russia’s involvement in the Six Party talks in 2003–06 was cautious but committed. Although China played the frontline role, ensuring that the talks got off the ground and continued, Russia also came to play an important supporting role. Ranking Russian diplomats described China as a “locomotive” driving the Six Party dialogue, whereas Russia’s role was to play “whisper diplomacy.” [43] Russia and China did work to coordinate strategically during summit meetings in early 2004; both countries stated their desire to keep North Korea nuclear weapons free. [44] In 2003, Russia abstained from an International Atomic Energy Agency (IAEA) vote on whether to send the North Korean nuclear issue to the UNSC, effectively announcing its preferred support for the Six Party format and for continued negotiation. During the third round of talks, Russia joined with China and South Korea in offering to supply energy—in the form of fuel oil—to North Korea in exchange for the DPRK halting any further development of its nuclear programs. Throughout the talks, Russia continued to supply modest food aid to North Korea and to have meetings with North Korean representatives. Economic Interaction. Ironically, while Russia was angling with South Korea in the mid1990s for loans and debt relief, Russia’s logic for continuing to pursue relations with the DPRK in the same period revolved around hopes of receiving payments on debts owed to Moscow by Pyongyang. Pyongyang had announced its refusal to repay a (estimated at $U.S.3-5 billion) when Yeltsin announced his intention not to renew the 1961 treaty and to halt weapons and technology transfers. Although Russia traditionally has been North Korea’s main supplier of equipment, petroleum products, timber, coal, fish, and marine products, approximately 70 percent of North Korea’s estimated $4 billion debt to Russia originates from unpaid-for weapons. [45] In the wake of President Putin’s visit to Pyongyang, North Korea is becoming increasingly active in economic contacts with Russia, which was exactly what Putin had hoped would result from the summit meeting. DPRK authorities have requested Russian assistance in the reconstruction of a number of facilities built by the Soviet Union in the 1950s and 1960s. The problem is that the DPRK does not have money to pay for the services, insisting on barter deals and low-interest credits instead. However, the Russian government, as it faces persistent economic and financial hurdles, cannot agree to such conditions. Barter is unlikely because of the Russian market economy and the fact that government authorities cannot force Russian companies to accept goods they do not need or want—although there were reports of a developing intra-Russian barter economy in the mid-1990s. [46] The DPRK has presented a list of goods it could export to Russia in exchange for Russian goods and services, but Russian officials say that most of the items on the North Korean list are of no interest to Russian companies. One possible way out of the predicament is to have South Korean banks and firms provide credits to the DPRK to exchange for Russian technical assistance. Perhaps the most revealing part of the DPRK–Russia Moscow Declaration of August 4, 2001, is embodied in point five: “In order to carry out a series of bilateral plans, the Russian side confirmed its intention to use the method of drawing financial resources from outsiders on the basis of understanding of the Korean side.” [47] In other words, Moscow and

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Pyongyang are now looking to Seoul, Washington, and Tokyo to foot the bill. Attempts are currently being made to find interested parties in the ROK. Meanwhile, Pyongyang has asked Russian authorities to set aside logging areas for DPRK workers in the Russian Far East. Russia needs help with its timber industry, particularly given increased demand from China, and North Korean wages are very low. There was even some speculation in the Russian news media following the summit that Putin had allowed Pyongyang to write off $50 million of its debt by providing free labor to timber camps in the Russian Far East. The presence of approximately 12,000 North Korean workers in the Russian Far East already has created problems not only because they have sought political asylum, but also because they have become involved in illegal activities such as smuggling and drug trafficking. [48] The Russian press also has reported North Korean involvement in counterfeiting and poaching. In addition to the migrant workers from North Korea, the Russian Far East saw the return there in the 1990s of ethnic Koreans who had been forcibly relocated under the Stalin regime. Native Russians met the returning Koreans with hostility. Nonetheless, Russia is the only country that might be able to absorb a North Korean workforce that is increasingly without jobs in North Korea. At the regional level, cooperation is growing between North Korea and the Russian Far East; since the Soviet period, North Korean workers have been involved in timber projects in the region, and more recently they also have been active in construction and agriculture. North Korean workers help fill a labor shortage in a region experiencing a population outflow, particularly of working-age inhabitants. In April 2001 Moscow and Pyongyang apparently agreed in principle to settle the pestering debt issue through a labor-for-debt swap deal, whereby North Korea would cover $5.5 billion in Soviet-era debt during the next 30 years by supplying workers who would toil unpaid in Russian labor camps across Siberia. About 90 percent of Pyongyang’s debts to Moscow was covered in such a manner in 2000, to the tune of $50.4 million. [49] At this rate, it would take 109 years to pay off Pyongyang’s debts to Moscow. On the whole, DPRK–Russian economic ties do not look very promising, and the development of serious investment and trade relations will likely need to involve South Korea. Russians complain that the DPRK still wants to build economic relations “along the lines of the old Soviet–DPRK model of getting things free-ofcharge.” On a brighter note, cultural cooperation has resumed in recent years. Russian performing artists are again touring in Pyongyang, and North Korean students can again be found in Russian schools [50] (see Table 2). Still, Moscow seems excited about the geo-economic opportunities resulting from increasing inter-Korean economic cooperation, particularly the prospect of rail links across the demilitarized zone (DMZ), which Russia hopes would create a new trans-Siberian freight route linking South Korea to Europe via North Korea and the Russian Far East. The difficulty is in leveling the playing field of the highly asymmetrical Moscow– Pyongyang–Seoul economic interdependence by integrating and reconciling Russia’s technical know- how and natural resources, North Korea’s labor, and South Korea’s capital—as well as Russia’s debt to Seoul ($1.8 billion) and Pyongyang’s debt to Moscow (about $3–$5 billion)—in a mutually beneficial and complementary way.

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Table 2. Russia’s Trade with North Korea, 1990-2004 (Unit: $U.S.1 million)

Year

Total North Russian Trade Exports Imports to North from North Korean-Russian Balance with Korea Korea North Korea Trade

Percent Change in North Korean-Russian Trade

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

1,315 194 277 188 100 68 36 67 57 48 43 64 77 116 205 224

-84% -6% -34% -38% -40% -23% +29% -23% -23% -8% +50% +17% +47% +76% +9.3%

908 171 65 39 40 16 29 17 8 2 3 5 4 3 5 8

2,223 365 342 227 140 84 65 84 65 50 46 69 81 119 210 232

+407 +23 +212 +149 +60 +52 +7 +50 +49 +46 +40 +59 +73 +113 +200 +216

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Sources: 1997 Diplomatic White Paper, Ministry of Foreign Affairs and Trade (MOFAT), Republic of Korea (ROK), pp. 396, 401; 1998 Diplomatic White Paper, pp. 481 and 486; 2000 Diplomatic White Paper, p. 497; 2001 Diplomatic White Paper, p. 484; 2002 Diplomatic White Paper, p. 497; available at www.mofat.go.kr; KOTRA at www. kotra.or.kr; ROK Ministry of Unification.

In order for this dream of an Iron Silk Road to come true the Russian way, however, Moscow would have to overcome some major obstacles, including the huge cost ($9 billion); Russia’s economic weakness; China’s relative advantage in connecting its own railway to the inter-Korean Seoul-Sinuiju line (Kyongui Line), which would make it the gateway for cargo travel from Asia to Europe; North Korea’s ongoing economic crisis and unpredictable behavior; and the politics of ideological and regional fragmentation in South Korea. Fearing that the new rail projects would diminish the role of Sea of Japan ports that depend on trade with South Korea, some Russian officials from the territory northeast of Vladivostok are opposed to the development of a new Russian-Korean rail corridor. [51] Regional relations provide only a short-term basis for economic relations, especially through contracts for North Korean guest workers, but the expanded North Korean presence in the Russian Far East has raised new concerns about Pyongyang’s involvement in nuclear smuggling, the heroin trade, and counterfeiting activities in Russia. Russian–North Korean regional cooperation will accelerate with the progress of major development projects such as that on the Tumen River, the Kovyktinskoe gas pipeline, and the inter-Korean railway, but such progress will depend on the ability to attract considerable outside investment, especially from Japan but also from South Korea and China. Russia’s ability to influence North Korea is related in no small degree to its struggle to adjust its national identity. In the early 1990s, Russia was concentrating on becoming a

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respected, democratic member of the Western community. The United States and Europe were seen as the main political and ideological allies of postcommunist Russia, the principal source of economic aid, and the model for Russian development. This vision drove the Russian Federation and the DPRK apart. Yet, with its difficulties in implementing and consolidating Western-style reforms and the threat of NATO expansion, Russia came to suffer pangs of disillusionment with the West and began to emphasize security concerns in its foreign policy, which became increasingly conservative and nationalistic. In this milieu, North Korea found more favor and solidarity with the Kremlin. The Korean peninsula resumed prominence in Russian eyes, and Russia’s involvement in North Korea—but perhaps not yet its influence over Pyongyang—began to renew itself.

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Japan and North Korea Political and Diplomatic Interaction. From the time it regained sovereignty in 1951 until the end of the Cold War, Japan made little effort to normalize ties with North Korea. There was negligible political or economic gain to be had by establishing official diplomatic relations with Pyongyang, and it appeared that the lack of political relations was not impacting the economic ties that did exist. Japan was firmly enmeshed in the U.S. alliance structure in East Asia and did not want to upset the balance by pursuing relations with the communist DPRK. Japan therefore had scant incentive to deviate from the policy of nonrecognition. In addition, in 1955 the General Association of Korean Residents in Japan (Chongryun in Korean or Chosen Soren in Japanese) established itself as a pro-North Korean organization and thereby became a de facto embassy for Pyongyang, representing North Korean interests in Japan through lobbying and occasional protest activities. Once Japan had signed the 1965 normalization treaty with South Korea, Pyongyang had less desire to pursue normalization, given its opposition to cross- recognition of the two Korean states and its insistence on regarding diplomatic ties as tantamount to absolute international legitimation. With a debt of hundreds of millions of dollars owed to Japan from trade relations, Pyongyang also was apprehensive over the prospect of finding itself at a bargaining table where it might be called on to pay such a debt (estimated at $530 million, with Pyongyang initially defaulting from 1972 to 1975). In the late 1980s, the confluence of the Gorbachev revolution in Soviet foreign policy, Seoul’s Nordpolitik, and Beijing–Moscow renormalization began to undermine the deep structure of Cold-War politics in NEA in general and on the Korean peninsula in particular. In July 1988, newly elected South Korean President Roh Tae Woo promulgated Nordpolitik, a major policy initiative aimed at improving inter-Korean relations by expanding South Korean political, economic, and cultural ties with the Soviet Union, China, and other socialist states. It also urged Tokyo and Washington to develop better relations with North Korea. When Gorbachev formulated a new Asia-Pacific strategy, one of the most interesting and groundbreaking ideas was Soviet recognition of Seoul, which was achieved in 1990, paving the road to Sino–ROK normalization 2 years later. The United States had relaxed its rigid North Korea policy in 1988, creating space for its allies to undertake more flexible foreign policies toward the DPRK. North Korea, in turn, was watching the financial and political support by its socialist allies recede. In the late 1980s and early 1990s, Japan was viewed as being on a trajectory to

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surpass the United States as the largest economy in the world and so seemed a ripe target for a North Korean state badly in need of support in the form of foreign capital and technology transfer. Japan, for its part, wanted to be sure that it was in place to play a leadership role in the emerging Northeast Asian order. Tokyo and Pyongyang, in fact, were both shocked by the outcome of the Soviet–South Korean summit meeting held in San Francisco in June 1990, though for different reasons. The DPRK was shocked by the defection of the rapidly disintegrating socialist superpower (the Berlin wall had fallen on November 9, 1988) from its one-Korea policy and sought to compensate for the diplomatic setback with its own surprise normalization. Japan, shocked by the success of Seoul’s Nordpolitik and its ability to reach out to the USSR and the PRC, felt compelled to act in the name of regional leadership. Given the ups and downs of inter-Korean diplomacy, the possibility of either a Korea suddenly reunified under terms favorable to increasingly powerful South Korea or a desperate North Korea lashing out with weapons of mass destruction (WMD) seemed very real. Japan therefore found it increasingly difficult to be a bystander in inter-Korean relations that now had the potential to directly impact Japan or to be the driving force of new and uncertain international developments throughout the Asia-Pacific region. Japan had to contemplate the possibility either of another destructive inter-Korean war, which this time would probably involve Japan directly, or of a sudden reunification with uncertain ramifications. [52] Therefore, on September 28, 1990, the leaders of Japan’s ruling Liberal Democratic Party (LDP) delegation joined with the Japan Socialist Party (JSP) delegation and the DPRK’s Korean Workers’ Party (KWP) to sign a joint declaration agreeing to hold normalization talks. The most important but controversial provision of the eight-point joint declaration stated that Japan should compensate North Korea not only for the damage caused during the colonial rule, but also for the “losses suffered by the Korean people in the 45 years” since World War II. The Japanese Ministry of Foreign Affairs then conducted a rearguard delaying action for years. After the eight rapid-fire rounds of talks between January 1991 and November 1992, both Pyongyang and Tokyo backed away from holding any additional talks. With the signing of the 1994 Agreed Framework between the United States and North Korea, Pyongyang began probing into whether Japan might welcome additional talks, but it received only a lukewarm response. LDP leader Watanabe Michio failed to restart the talks, and the 1995 and 1996 editions of Japan’s White Paper on Defense still listed North Korea as the “major destabilizing factor” with regard to East Asian security. Three new rounds of talks were held from April to October 2000 in Tokyo, Pyongyang, and Beijing, respectively. The ninth round in April involved discussions of Japan’s colonial history and North Korea’s abduction of Japanese citizens during the 1970s and 1980s. Japan suspected that North Korea had abducted 11 Japanese citizens from coastal towns across the archipelago and in Europe. In August, at the 10th round of talks, North Korea reportedly agreed to stop demanding “reparations” and to discuss “compensation” instead; Japan offered a $200 million loan and $300 million of economic cooperation aid, as opposed to “compensation.” Japan also emphasized the importance of solving the abduction issue, as the chief Japanese negotiator pointed out that any normalization treaty to come out of the talks would need the approval of the Diet, which would not be forthcoming without public support that would be contingent in turn on resolution of abduction issue. At the 11th round of talks, Japan offered 500,000 tons of rice [53] and a very large economic package, as quid pro quo

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for North Korea’s moderation of the missile threat and satisfactory resolution of the abduction issue. [54] North Korean negotiators rejected the offer, and the talks collapsed in only 2 days, with no mention of a date for the next round of normalization talks. These normalization talks again fell apart because of their failure to resolve two major issues: North Korea’s demand for compensation and Japan’s demand for accountability on the abduction of Japanese citizens. North Korea persisted in its denial of any knowledge about the abduction issue, while refusing to accept the Japanese proposal to offer economic aid rather than reparations. In view of the uncompromising positions taken by both sides on these issues at the normalization talks, it became evident that the settlement of these thorny issues would require a high degree of political compromise between Tokyo and Pyongyang, probably achieved as a package deal rather than through the piecemeal approach. Despite the Japanese sinking of a North Korean spy ship in December 2001, the year 2002 under Koizumi’s leadership witnessed some progress in relations between Japan and North Korea. Japanese and North Korean Red Cross delegations met in Beijing in April and agreed that North Korea would conduct a “serious investigation” into the matter of “missing” Japanese, and in mid-August the first details of abducted Japanese citizens began to emerge from North Korea. In addition, Pyongyang expressed a willingness to accept Japan’s economic aid instead of insisting on “reparations.” Against this background, Japan announced on August 30, 2002, that Koizumi would visit North Korea on September 17 for a summit meeting with Kim Jong Il. Koizumi’s decision apparently reflected his determination to normalize relations with North Korea, and the historic visit aroused high expectations for a normalization breakthrough. The United States, in contrast, on learning about the surprise visit, is said to have put inordinate pressure on Japan not to move too fast on normalization talks. [55] In Pyongyang, at the first ever Japanese–North Korean summit, both sides gave ground on bilateral issues. Kim Jong Il acknowledged North Korea’s responsibility for abducting Japanese nationals and offered an apology. Providing information about new abductees about whom Japan had not asked, North Korea revealed that out of 13 abductees, eight had died and five were still alive. Koizumi demanded that North Korea continue its investigation into the cases, return those who were alive, and take measures to prevent such activities in the future. Kim pledged not to engage in such an act again, saying that Pyongyang already had punished those responsible. The talks ended with a joint declaration in which Japan promised “economic assistance” in the form of grants, long-term soft loans, and humanitarian assistance via international organizations, while North Korea promised compliance with international law, pledging to take appropriate measures so that regrettable incidents that took place under the abnormal bilateral relationship would never happen in the future. Both countries agreed to fulfill “all related international agreements” pertaining to nuclear issues on the Korean peninsula. To placate enraged public opinion, Japan dispatched an official delegation to collect further information concerning the fate of the Japanese abductees. Pyongyang told the Japanese team that all eight had died from “illness and disasters” and had not been the victims of foul play. However, there were inconsistencies in the North Korean story that further aggravated Japanese families. The Koizumi government arranged for the five surviving abductees to return to Japan for a 2-week visit in October. Before the end of their visit, Japan announced that it had decided to extend the stay of the five abductees indefinitely so as to enable them to decide their future freely.

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Following the summit, the 12th round of Japanese– North Korean normalization talks was held in Kuala Lumpur, Malaysia, on October 29–30, 2002. At these talks, it quickly became evident that there was a wide chasm between Japan and North Korea on several key issues. The North Korean delegation rejected Japan’s demand for the settlement of the abduction issue, contending that it had been resolved at the Pyongyang summit when Kim Jong Il offered an apology with a promise to prevent recurrences. Furthermore, North Korea insisted that it was cooperating with Japan in investigating details surrounding the deaths of the 8 deceased abductees. North Korea also accused Japan of breaking its promise to return the five abductees to Pyongyang after a 2-week home visit in Japan and demanded that Japan keep its promise to pave the way for the resolution of the issue; the Japanese delegation denounced Pyongyang’s “criminal act of kidnapping.” Japan was also insistent that North Korea maintain the tenets of the Pyongyang Declaration, submit to its responsibilities under the NPT, and not target Japan with its Rodong missiles. In response to North Korea’s desire to discuss economic cooperation as a priority issue, Japan replied that economic aid would come only in the aftermath of the normalization of Tokyo– Pyongyang diplomatic relations. The talks adjourned without agreement on the next round of normalization talks. Much of the abductions controversy and the 12th round of negotiations came at the same time as the reemergence of the North Korean nuclear issue. Thus, when Japan–DPRK relations became stalemated after the Kuala Lumpur meeting, there was little external intervention to push them forward, and there was therefore no movement in the normalization talks in 2003. In fact, Japan, because of domestic political pressure, became increasingly anxious about and mired in the abduction issue. Despite Japan’s concern about North Korea’s nuclear program, the issue of the roughly two dozen Japanese citizens abducted by North Korean agents in the 1970s for espionage training had now come to dominate Japanese policy toward North Korea, to the exclusion of all else. [56] In early 2004 it became clear that Japan was taking preliminary steps toward the imposition of economic sanctions against North Korea. This led Pyongyang to indicate its willingness to be more flexible on the abduction issue. In fact, Pyongyang agreed to allow a Japanese delegate to come to North Korea to pick up eight family members of the abductees who had returned to Japan. Koizumi, desiring to normalize diplomatic relations with North Korea before the end of his tenure as prime minister in 2006, indicated that his visit to Pyongyang should not be ruled out as an option. On May 22, 2004, Koizumi visited Pyongyang to hold talks with Kim Jong Il, a second Koizumi–Kim summit in the short span of less than 2 years. Kim agreed to allow the families of five former Japanese abductees to go to Japan for a family reunion and promised a new investigation into the fate of other abductees. Koizumi emphasized the importance of a comprehensive solution to pending security issues, including Pyongyang’s development of nuclear weapons and missiles. Kim reiterated North Korea’s position that Pyongyang had to maintain a nuclear deterrent but also stated that his goal was to achieve a nonnuclear Korean peninsula. In addition, Kim reassured Koizumi that the North would maintain a moratorium on missile firing tests. For these diplomatic victories, Japan paid richly. Koizumi promised Kim 250,000 tons of food and $10 million worth of medical assistance through international organizations. He also pledged that Japan would not invoke economic sanctions as long as North Korea observed the terms of the joint declaration from the first summit. In return, Pyongyang merely allowed five children of the repatriated abductees to go to Japan with the prime minister.

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Most Japanese believed that Koizumi had paid too high a price at the second summit, although they gave him high marks for bringing home the family members of the five surviving abductees. [57] In an attempt to pressure North Korea to make concessions, in June 2004 the Japanese Diet took matters into its own hands and enacted a law to ban certain foreign ships from making port calls in Japan. The law was designed to prohibit the entry of North Korean ships suspected of being engaged in illegal trafficking of money, drugs, counterfeit currencies, and equipment and materials used in the production of WMD. At August 2004 working-level talks, the North Korean delegation refused to address the abductees issue in any new way and was not ready to engage Japanese negotiators on the nuclear issue either. Without a breakthrough in resolving either the residual abduction issue or Pyongyang’s nuclear weapons program, the Koizumi government decided not to resume normalization talks. It might appear puzzling that Japan has tried as hard as it has to normalize relations with North Korea. After all, what could it expect to gain from the process? There are several things. In the first place, nonnormalized relations with North Korea stick out as a reminder of Japan’s imperial past, and although there has been a recent surge of nationalism in Japan, there is still a desire among the Japanese public to wipe its World War II slate of guilt completely clean. Economically, Japan is worried that it might not be able to compete effectively on a Korean peninsula where other major powers— China and Russia—have established diplomatic ties with both North and South Korea. In addition, there is a concern among some influential leaders of the LDP and among Foreign Ministry officials that the collapse of North Korea would create enormous economic, political, and humanitarian problems for Japan. This last concern enhances the possibility that DPRK– Japan normalization might be an element in a broader agreement that incorporates a solution to the North Korean nuclear standoff. Security Interaction. During the Cold War, there was very little interaction on security issues between Pyongyang and Tokyo. Japan was ensconced in the protective shield of the U.S.–Japan alliance system, in which the United States did all the heavy lifting while Japan pursued a free ride policy that fits more closely with mercantile realism, separating economics from politics. [58] Because North Korea’s development of missile and nuclear programs was not yet known, Japan had little interest in interacting with the DPRK. Pyongyang, at home in its own ideological alliance cocoon with the Soviet Union and China, had no compelling strategic or ideological reason for diplomatic normalization with Japan. However, as the DPRK’s ballistic missile and nuclear programs began surfacing in the early years of the post–Cold War era, Japan may have been the one country that was more alarmed than was South Korea. Although the Kim Young Sam government in Seoul was concerned over the advancing ballistic missile and nuclear capabilities in the North, ordinary South Korean citizens did not appear overly anxious or threatened. The Japanese, however, having suffered the twin blows of Hiroshima and Nagasaki on the eve of their surrender during the last days of World War II, felt a degree of atomic angst they had never experienced during the Cold War. [59] Japanese fear became palpable during the nuclear crisis of April 1994, when North Korea removed spent fuel rods from its nuclear reactor in Yongbyon and refused to segregate rods that could provide evidence of a plutonium-based nuclear weapon program. [60] Japanese leaders let out a sigh of relief when the crisis was defused by former U.S. President Jimmy Carter’s June 1994 visit to Pyongyang, where Carter’s meeting with Kim Il Sung paved the

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way for the signing of the U.S.-DPRK Agreed Framework in October 1994. The Japanese 1995 Diplomatic Bluebook, issued after the conclusion of the Agreed Framework, distanced Japan somewhat from the North Korean nuclear issue. Japan saw its main role as one of cooperation: both in the newly established international consortium providing energy to the DPRK and in the diplomatic realm with the United States and the ROK. However, the 1998 Taepodong missile shock galvanized the Japanese government into action on long-term plans. Tokyo decided to develop and deploy its own spy satellite system to improve its ability to monitor—independently of the United States— developments on the Korean peninsula and elsewhere in the Northeast Asian region. [61] In March 1999, Defense Agency Director General Norota Hosei told a Diet defense panel that Japan had the right to make preemptive military strikes if it felt a missile attack on Japan was imminent. [62] Japan therefore decided to acquire midair refueling aircraft to enable its Air Self- Defense Force (ASDF) to conduct long-range strike missions. Tokyo viewed this as important because of Japan’s vulnerability linked to its lack of offensive military capacities that could deter or counter North Korean attacks, capabilities that are possessed by the United States and, to a lesser extent, South Korea. Finally, the Japanese government authorized the Japanese Navy and Coast Guard to pursue unidentified ships entering Japanese territorial waters and to use force against them if necessary. The historic inter-Korean summit meeting of June 2000 drastically changed the political milieu in East Asia, and Japan’s relationship with the DPRK improved as normalization talks materialized in April, August, and October. The dramatic summit diplomacy gave some comfort to the Japanese regarding the prospect of a more reasonable and responsible North Korea. Food aid through the World Food Program (WFP) resumed, and the issues of visitations by Japanese nationals living in North Korea and the investigation of “missing” Japanese citizens were broached. Then, in the wake of the October 2002 revelation about North Korea’s HEU nuclear weapon program and the outbreak of the new nuclear standoff, Japan readily agreed to increase funding and research support for the missile defense project. Not surprisingly, Japan, as compared with Europe and Canada, had few misgivings regarding the implications of deploying a ballistic missile defense system. [63] North Korea’s official news media accused Japan of blindly following the United States in pursuing a hostile policy toward North Korea. Rodong Sinmun [Worker’s Daily] declared that the Korean peninsula’s nuclear issue “is not an issue for Japan to presumptuously act upon” because it is a “bilateral issue to be resolved between the U.S. and North Korea.” The newspaper slammed the door on a Japanese role, asserting that “Japan is not a party concerned with the resolution of the Korean Peninsula’s nuclear issue and has no pretext or qualification to intervene.” [64] In addition, referencing national identity issues, it criticized Japan for using “various pretexts and excuses to shelve the liquidation of its past and deliberately slackened normalizing relations” with North Korea. Following a May 2003 Bush-Koizumi summit in Crawford, Texas, Tokyo agreed to become one of 11 nations—the one and only Asian country— participating in the U.S.-led Proliferation Security Initiative (PSI) to interdict WMD shipments to and from countries such as North Korea. That the emphasis is on the DPRK itself and not terrorism in general is indicated by the fact that the 2003 Diplomatic Bluebook lists North Korea ahead of the war on terror and WMD as Japan’s greatest diplomatic concerns. In the summer of 2003, the Japanese parliament passed three “war contingency bills” that would give the Japanese government new power to cope with armed attacks on Japan. Such

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contingency legislation had first been discussed among Japanese conservatives some 40 years earlier but was shelved because of the possibility that it would violate Article 9 of the Japanese constitution. The threat posed by North Korea and international terrorism, however, enabled the Koizumi government to win the support of the main opposition party, the Democratic Party of Japan (DPJ), for the enactment of this special legislation. The legislation enables Japan to deploy the Self-Defense Forces (SDF) swiftly by suspending numerous restrictions hindering its effective mobilization and operation. Indeed, Koizumi has changed Japan’s national security policy more than any leader since World War II. In a 5-year period from April 2001 to April 2006, the Koizumi government was responsible for about 60 percent of the national security legislation or revisions enacted since Japan’s Self-Defense Forces were founded in 1954. [65] With regard to the nuclear issue, Japan has (1) called for complete, verifiable, irreversible dismantlement (CVID) of the North Korean nuclear programs, (2) agreed that discussions on North Korea’s security concerns and energy assistance could be advanced within the Six Party talks after the DPRK agreed to CVID, and (3) asserted that there is no change in Japan’s basic positions of settling outstanding issues based on the Pyongyang Declaration and the normalization of relations in a peaceful manner. [66] Japan has also continued to pursue defensive military measures, such as an effective missile defense system. Alongside resolution of the abduction issue, there is no question that reduction of Pyongyang’s military threat remains atop the list of Japanese priorities. Japanese security planners, however, are also concerned that a marked deterioration of political stability in North Korea or a military miscalculation by Pyongyang would invite great power intervention, thereby affecting Japanese interests on the peninsula. [67] Japan therefore has an interest in restraining the United States, especially in a world in which the Bush administration has outlined a national security strategy that includes preventive war as a last resort. The Koizumi administration, for example, warmly welcomed the Bush administration’s October 2003 offer of a security guarantee for the DPRK. [68] Economic Interaction. In general, Japan’s economic role is potentially critical in the crisis over North Korea’s nuclear weapons program. Most important, Japan has promised North Korea, using the 1965 Japan– South Korean normalization agreement as a model, a largescale economic aid package in recognition of the “tremendous damage and suffering” Japan inflicted during its colonial rule of Korea from 1910 to 1945. The aid package would go into effect after the two countries agree to normalize relations, with Japan now linking normalization to a resolution of the abduction and nuclear issues. Japanese officials are reportedly discussing a package on the order of $5–$10 billion, an enormous sum considering the small size of the North Korean economy, the total gross domestic product (GDP) of which is estimated to be $20.8 billion (as of the end of 2004). There is some fear, however, that a payment of this magnitude would serve to prolong Kim Jong II’s regime artificially without inducing any behavioral changes, or possibly that the funds would be redirected to the North Korean military. To capture the money, Pyongyang has moved away from demands that the package be labeled as “reparations” or “compensation” and also has backed off from its periodic insistence that Japan provide compensation for harms allegedly inflicted since 1945. There has been little indication of how the normalization of relations would impact financial flows to the DPRK, and this may ultimately be of more importance to North Korean economic development than are trade flows. The most likely initial source of such financial

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flows would come from DPRK-friendly residents of Japan. Although Chongryun is the most active group doing business with North Korea, its resources are extremely limited, and its political clout has shrunk to near zero. In the event of normalization, Korean residents of Japan will play a role as middlemen for large firms, and local governments and business groups in the coastal areas near North Korea are expected to increase their investment in the DPRK. But here, too, resources are very limited and, in fact, declining. Japanese investors have shown only limited interest in multilateral regional development programs, such as the UN Development Program’s Tumen River Area Development Program (TRADP). [69] Substantive increases in the form of direct investment would have to come from large Japanese firms and financial institutions, but this is likely to depend on resolution of the DPRK debt issue. Ultimately, North Korea will have to prove itself to be a more attractive location for investment than China (see Table 3).

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Table 3. Japan’s Trade with North Korea, 1990–2005 (Unit: U.S.$1 million)

Year

Exports to North Korea

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

194 246 246 243 188 282 249 197 175 147 207 249 135 92 89 60

Total JapanImports from North Korea North Korea Trade 271 465 250 496 231 477 222 465 297 485 306 588 265 514 269 466 219 394 202 349 257 464 226 475 234 369 172 264 164 253 130 190

Japanese Trade Balance with North Korea

Percent Change in Japan- North Korea Trade

-77 -4 +15 +21 -109 -24 -16 -72 -44 -55 -50 +23 -99 -80 -75 -70

N/A +7% -4% -3% +4% +21% -13% -9% -15% -11% +33% +2% -22% -28% -4% -25%

Sources: International Monetary Fund (1992, pp. 247, 304; 1993, pp. 247, 305; 1994, pp. 265, 326; 1995, pp. 269-270; 1996, pp. 275, 342; 1997, pp. 342, 347; 1998, pp. 289, 349) and MOFAT (1998, pp. 396, 401; 1999, pp. 481, 481, 486; 2001, p. 497; 2002, p. 484; 2003, p. 497), available at www.mofat.gokr and KOTRA at www.kotra.or.kr; ROK Ministry of Unification.

For the near term, Japanese policymakers seem to have quietly concluded that their wisest course is to maintain the status quo as long as possible. For Japan, the issue of Korean reunification poses a dilemma. While a strong, united, and nationalistic Korea could pose a formidable challenge or even threat to Japan, the continuation of a divided Korea with an unpredictable failed state in the North is no less threatening to Japan’s security. [70] The challenge, therefore, is to navigate between the Scylla of a unified Korea, with all its

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uncertainties, potential instability, and new challenges, and the Charybdis of a divided Korea, with the continuing danger of implosion or explosion in the North. Hatoyama Ichiro, who became the Japanese prime minister in 1955, took the first steps to initiate postwar economic ties between Tokyo and Pyongyang. But only in November 1962 did Japan and North Korea finally begin direct cargo shipments, on a very small scale. Trade agreements were signed 2 years later, in July 1964, but the impact was small. Economic relations between North Korea and Japan were modest throughout the 1960s but made a large jump forward in the early 1970s. The increase in trade in 1972 and 1974 was due in part to the recognition by Tokyo’s leftist governor Minobe Ryokichi of Chongryun — the civil society organization of pro-Pyongyang Koreans in Japan—as North Korea’s de facto representative in Japan. The group was granted tax-free status. [71] At trade fairs in Pyongyang, the North Korean hosts purchased all Japanese products on display and ordered more, but they were not forthcoming with payments for the goods. When North Korea defaulted in 1972 on payments to the Kyowa Bussan Trading Company— comprised of 20 large Japanese firms—Japan’s Ministry of International Trade and Industry (MITI) suspended all export credits in 1974. Despite the lack of payments, limited trade, usually worth no more than $500 million, continued between Japan and North Korea. After North Korea announced its Law on Joint Ventures in 1984, a Mitsui Trading Company subsidiary backed a gold mine venture with North Korean residents of Japan, and an Osaka-based firm established a cement factory in North Korea in 1990. [72] Remarkably, in 1993 Japan became North Korea’s second largest trading partner after China and soon thereafter temporarily became its largest partner. But overall trade volume quickly began to decline, largely due to the severe deterioration of North Korea’s economy, sparked by the withdrawal of Soviet and Chinese support in the late 1980s and early 1990s. Bilateral trade has declined for 4 years in a row since 2002, reaching a 28-year low of $190 million by the end of 2005. More stringent Japanese port controls have led in part to the acceptance of fewer shipments from North Korea, but, more to the point, Japanese firms that had been commissioning manufacture—textiles and electrical machinery—from North Korean plants found the DPRK too risky and Chinese alternatives too attractive. [73] Although trade levels continue to decline, the concurrent shrinking of the North Korea economy may mean that trade with Japan—particularly exports, which generate hard currency—is relatively more important to North Korea today than it was in the 1980s. Recently a number of local governments have decided to reconsider their policy of making Chongryun facilities either partially or entirely exempt from fixed- asset taxation. [74] Meanwhile, a Japanese government crackdown on drug smuggling has caused much of the North Korean narcotics traffic to be rerouted through China. [75] In June 2003, Japan ordered its customs and immigration services and its coast guard to expand safety inspections and searches for illicit contraband on North Korean cargo and passenger ships. At the end of 2003, Prime Minister Koizumi indicated his intention to consider imposing sanctions on North Korea due to Pyongyang’s failure to respond to Japanese requests for quick and thorough action on the abduction issue. Although Koizumi maintained that his government was not considering immediate economic sanctions against North Korea, his chief cabinet secretary did not rule out possible sanctions in the future “if North Korea makes things worse.” North Korea’s reactions to this possibility were negative; a spokesman for the North Korean Foreign Ministry denounced it as a “wanton violation” of the Pyongyang

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Declaration, warning that Japan would be responsible for “all consequences to be entailed by its foolish moves.” [76] The amended Law on Liability for Oil Pollution Damage, which took effect March 1, 2005, amounts to a de facto economic sanction on the DPRK. The new law bans from Japanese ports all foreign vessels weighing more than 100 tons without proper liability insurance regarding oil spills. Most DPRK freighters are not covered by the required “Protection and Indemnity Insurance,” and they in effect will be banned from Japanese ports. It is unclear how effective these independent sanctions against North Korea will be; they could, in fact, result in China gaining much more influence over North Korea. Some commentators have begun complaining that Japan is forsaking what influence it does have in Pyongyang. Amid declining Japan–North Korea trade, the value of trade between China and North Korea tripled in the 4 years from 2001 to 2004, and it now amounts to one-half of North Korea’s overall trade, whereas Japan and North Korea are trading only one-fifth as much as at their peak of economic relations in 1980. Japan simply cannot sanction the DPRK effectively without China’s support. Japan’s economic relations with North Korea extend beyond trade and investment. North Korea’s first public aid-seeking diplomacy came in May 1995 when Pyongyang sent a delegation to Tokyo. [77] The pattern of Japanese aid reflects developments in the political relationship between Tokyo and Pyongyang; shipments began in 1995 and 1996 when relations warmed and then were suspended after the Taepodong missile launch over Japan in 1998 and the spy ship incident in 2001. In the face of North Korea’s unwillingness to give up its nuclear weapons program, the Koizumi government announced that it had ruled out the possibility of extending any additional food aid to North Korea beyond that agreed on at the Pyongyang summit. Japan–North Korea bilateral trade and economic relations have declined surprisingly since the end of the Cold War. Although the level of trade between the countries pales in comparison to that between Japan and South Korea, Japan is an extremely important source of goods and capital for the DPRK. Japan also stands poised to be a major underwriter for economic reforms in North Korea. In terms of engaging North Korea since the October 2002 nuclear revelation, Japan’s possible economic aid has acted as the biggest bunch of carrots dangled before Pyongyang in an attempt to ensure peace and stability in NEA and also to improve inter-Korean relations. In recent years, however, Japan has put in place several laws that limit North Korea’s ability to engage in either legal or illegal trade with Japan. The problem is not economic; rather, the question of abductions weighs heavily on Japanese engagement. Many Japanese citizens feel an emotional involvement in the fate of the abductees, not only driven by a genuine sense of horror at the actions of the North Korean government but also nurtured for political gain by the LDP. [78] Although the continuing nuclear issue is also relevant for Japan’s normalization of economic and political relations with North Korea, it is really the abductions around which the public imagination crystallizes. The abductions are yet another national identity issue providing a wedge in Japan–Korea relations and preventing the expansion of contacts. Pyongyang, however, prefers to accuse Japan of acting as the “shock brigade” for the U.S.- led “psychological warfare and blockade operation” in regard to its implementation of sanctions. [79] Until political issues can be settled, it is unlikely that there will be any major changes in Japan–DPRK economic relations.

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The United States and North Korea Without a doubt, the United States remains the most dominant external actor on the Korean peninsula. Although U.S. primacy at almost any point on the globe is widely accepted, the description is particularly apt on the Korean peninsula. By dint of what it is and what it does, Washington is seen in both Seoul and Pyongyang, albeit for different reasons, as having become part of both the Korean problem and the Korean solution. Nonetheless, in the conception and conduct of foreign policy, the United States is impacted on and shaped by the changing dynamics of its domestic politics and regional and global interests, even as local and regional factors have gained greater saliency in the foreign relations of both Koreas in the post–Cold War era. Both despite and in conjunction with the North Korean mantra decrying U.S. imperialism, the United States has become central in Pyongyang’s strategic thinking and behavior, alternately seen as a mortal threat or an external life support system, and sometimes as both. With the demise of the Soviet Union, uncertain aid from China, and increasingly close PRC– ROK relations, the United States has become, for want of anything better, the functional equivalent of China and the Soviet Union in Pyongyang’s perspective, at least until recently. However, whereas the DPRK’s specialty during the Cold War was playing its allies Moscow and Beijing off against each other to reap economic, technical, and military aid, now it must seek to achieve the same aid—and also international legitimacy, investment, and trade—from a single adversary that is increasingly inclined to use force rather than favor. [80] The Long Road to Normalization. By the end of the Cold War, the United States had a working relationship with China. The second term of Bill Clinton’s presidency would bring about rapprochement with Vietnam, 2 decades after the end of the U.S. conflict with that country. Few, however, predicted a quick normalization of relations with North Korea in the post–Cold War years. The intensity of the Stalinist state’s political position made such an outcome seem unlikely; after all, Pyongyang rhetorically disparaged “cross-recognition” of the two Koreas as a move toward perpetual division of the peninsula. Furthermore, the predictions of Pyongyang’s probable collapse made a pursuit of normalization seem like a waste of time. Nonetheless, by the late 1990s, as Clinton was preparing to leave office, normalization seemed to be on the table, though events during the Bush administration have been far less encouraging. In the early 21st century, the U.S.-DPRK relationship is one of a kind. With the fall of the Soviet Union, North Korea is the longest-running political, military, and ideological adversary for the United States, and vice versa. Few other bilateral relationships in modern international relations approach this 60-year history of mutual enmity and provocation fueled and sustained by seemingly immutable antagonistic identities. From the end of Korean War hostilities in 1953 until the late 1980s, there was no formal diplomatic contact of any kind between the United States and the DPRK. With the winding down of the Cold War and the consequent strategic transformation taking place throughout the world, the Reagan administration launched what was termed a “modest initiative” to start a dialogue with North Korea. Recognizing that Pyongyang’s increasing isolation was a dangerously destabilizing factor in Northeast Asia, Reagan authorized the State Department in the fall of 1988 to hold substantive discussions with North Korean representatives in neutral settings and allowed nongovernmental visits from North Koreans in academics, culture, sports, and a few other areas. He also ended the almost-total U.S. ban on commercial

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and financial transactions with North Korea by allowing certain exports on a case-bycase basis. [81] The George H. W. Bush administration, however, did not continue the initiative. Then on March 11, 1993, the DPRK issued the 90- day legal notice that it was withdrawing from the NPT, which it had signed in December 1985. The withdrawal was a response to the demand by the IAEA — backed by the threat of an application for UN sanctions—for special inspections permitting unlimited access at any time or place (the first such request ever made by the IAEA). The announcement of withdrawal created an instant atmosphere of crisis in Seoul, Tokyo, Washington, Vienna, and New York, while 149 countries “issued statements denouncing Pyongyang’s intended withdrawal.” [82] Despite the prior U.S. agreement on the principle of supplying North Korea with two light-water reactors (LWRs), the agreement stalled in the hammering out of details, dragging on for almost a year. In May 1994 Pyongyang began removing nuclear fuel rods from the Yongbyon reactor without the presence of IAEA inspectors. As the matter came before the UNSC, the DPRK declared that “U.N. sanctions will be regarded immediately as a declaration of war,” [83] though Jimmy Carter subsequently received Kim Il Sung’s personal pledge to freeze the DPRK’s nuclear program. Somewhat embarrassed, the Clinton administration had no choice but to negotiate with Pyongyang, and it began a 4-month process that led to a written agreement, officially known as the U.S.-DPRK Agreed Framework. Although some hardline opponents of this North Korean policy cried “appeasement,” the fact is that in the absence of the Agreed Framework, North Korea might today have 50 to 100 nuclear weapons, rather than 1 or 2 or possibly 6 to 8. [84] The Agreed Framework realized in October 1994 inaugurated a period of limited engagement between the United States and the DPRK. As a putative solution to the North Korean nuclear issue, the document called on the United States and North Korea to implement four conditions. To deal with the energy crisis in North Korea, the United States was to facilitate the construction of two LWRs, with the first one scheduled for completion by 2003, in exchange for a written agreement with the DPRK on the peaceful use of nuclear energy. Also, the DPRK was to freeze and dismantle the graphite-moderated reactors under construction. In addition, the United States would ensure the supply of heavy fuel oil at a rate of 500,000 tons annually. The United States also pledged that it would not use or threaten to use nuclear weapons against North Korea (i.e., negative security), and the DPRK was expected to engage in dialogue with the ROK. In the pursuit of effective international regimes, the DPRK was to come into compliance with the NPT and the requirements of the IAEA. Finally, the two countries were to move toward full normalization of political and economic relations, beginning with reduced barriers to trade and investment within 3 months of the signing of the Agreed Framework. Pyongyang was very positive in its assessment of the document. North Korea’s chief negotiator, Kang Sok Ju, described it as “a very important milestone document of historical significance” that would resolve the nuclear dispute with finality. The official news media in the DPRK called the accord “the biggest diplomatic victory” and went to great lengths to describe it as an end achieved by the DPRK on its own—that is, without pressure or assistance from China: “We held the talks independently with the United States on an independent footing, not relying on someone else’s sympathy or advice, and the adoption of the DPRKU.S. agreed framework is a fruition of our independent foreign policy.” [85] The Agreed Framework, therefore, served as a roadmap for moving U.S.-DPRK relations toward normalization, starting with the establishment of liaison offices in Pyongyang and

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Washington (similar to the pathway that Sino–American rapprochement took to full normalization), but because of half-hearted implementation of the agreement on the part of the United States, very little progress was made. The lack of seriousness with which the United States would treat the Agreed Framework was made evident when the U.S. General Accounting Office stated that the Agreed Framework should properly be described as “a nonbinding political agreement” or “nonbinding international agreement” rather than an internationally binding legal document. [86] North Korea, of course, had anticipated that the signed agreement would be treated as a legally binding treaty and has since perceived itself as suffering from a double standard of expectations regarding implementation. The Taepodong-I missile test in August 1998 and the suspicions about the restarting of plutonium processing were accompanied by North Korean rumblings about abandoning the Agreed Framework. In response, Clinton instructed his former Secretary of Defense, William Perry, to conduct a thorough review and assessment of U.S. policy toward North Korea. The Perry process marked the beginning of a sustained effort at the highest levels of the Clinton administration to achieve a breakthrough in relations with North Korea. The Perry Report, issued in October 1999, notes the centrality of the Agreed Framework and calls for a twotrack approach of step-by-step comprehensive engagement and normalization along with a concurrent posture of deterrence. The report also divulges that during the process of exploring policy options, a policy of regime change and demise, that is, ”a policy of undermining the DPRK, seeking to hasten the demise of the regime of Kim Jong Il,” had been considered and rejected. [87] All of this, however, had much to do with the changing correlation of geostrategic forces in the early post–Cold War years. Amid mutual footdragging Pyongyang began to express its con- cern openly as the 2003 deadline for the delivery of a LWR approached. On February 20, 2001, a DPRK Foreign Ministry spokesman said, If [the United States] does not honestly implement the agreed framework, . . . there is no need for us to be bound to it any longer. We cannot but consider the existence of the Korean peninsula Energy Development Organization (KEDO) as meaningless under the present situation when no one can tell when the LWR project will be completed. [88] On June 18, 2001, the same source warned, “The agreed framework is in the danger of collapse due to the delay in the LWR provision.” [89] Soon thereafter, the terrorist attacks of September 11, 2001 (9/11), produced an overall shift in U.S. policy from engaging adversaries to confronting them. The footdragging over the implementation of the Agreed Framework was due in part to the expectation— in Seoul no less than in Tokyo and Washington— that Pyongyang would collapse before the KEDO construction program was completed. Yet the delay was not all on one side, there also being some North Korean footdragging. Six months were wasted on an “identity argument” as to what the reactor type was to be called, and then a labor dispute shut down the construction until workers from Central Asia were brought in by KEDO to substitute for the DPRK workforce. With Bush’s declaration of an “axis of evil” in January 2002, the administration’s refusal to certify in March 2002 that the DPRK was acting in accord with the Agreed Framework (a refusal which threatened U.S. funding of KEDO), and finally Pyongyang’s revelations of October 2002 regarding a HEU program, Pyongyang and Washington found themselves at loggerheads. After a long delay, Assistant Secretary of State James Kelly went to North Korea in early October 2002 for comprehensive policy discussions.

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The Proliferation Security Initiative (PSI) was announced in May 2003, organized around the concept of intercepting ships and planes believed to be carrying illicit weapons material. Then, in the summer of 2003, what were purported to be details of DoD’s Korea Plan 5030 were leaked to the press. [90] These strategic documents were an anathema to Pyongyang, which was closely attuned to developing U.S. policy. Both DPRK officials and the North Korean media had long and assiduously followed the U.S. security policy debate and relevant published documents. For instance, after the nuclear standoff unfolded in October 2002, North Korean statements regularly cited President Bush’s inclusion of the North in the “axis of evil” and the administration’s preemption doctrine as virtual declarations of war that justified the DPRK’s withdrawal from the NPT. [91] By the end of the first term of the Bush administration, virtually all former U.S. ambassadors to the ROK and special envoys to the DPRK (Donald Gregg, James Laney, Stephen Bosworth, William Perry, Wendy Sherman, and Charles Kartman) had criticized the administration’s approach to North Korea openly. Charles Pritchard, who resigned as the State Department’s special envoy for North Korean nuclear issues in August 2003, said, “We’ve gone, under [Bush’s] watch, from the possibility that North Korea has one or two weapons to a possibility — a distinct possibility—that it now has eight or more. And it’s happened while we were deposing Saddam Hussein for fear he might get that same capability by the end of the decade.” [92] If normalization is to come about, security guarantees for North Korea seem to be a necessary if not sufficient condition. The centrality of the DPRK’s survival- driven security dilemma is evidenced in comments by Pritchard regarding the 2000 U.S. diplomatic trip to North Korea: I am struck by what Kim Jong-il, North Korea’s leader, said to Madeleine Albright, former US secretary of state, in October 2000. He told her that in the 1970s, Deng Xiaoping, the Chinese leader, was able to conclude that China faced no external security threat and could accordingly refocus its resources on economic development. With the appropriate security assurances, Mr. Kim said, he would be able to convince his military that the US was no longer a threat and then be in a similar position to refocus his country’s resources. [93]

In a 1999 interview, William Perry offered a similar assessment: “We do not think of ourselves as a threat to North Korea. But I fully believe that they consider us a threat to them, and therefore, they see [the Taepodong-I] missile as a means of deterrence.” [94] Without U.S. engagement, North Korea seems destined to receive neither the international aid that it needs nor the international recognition that it covets. More to the point, without engagement the DPRK is likely to maintain its bunker mentality, as evidenced by pronouncements such as this one from August 2003: The Bush administration openly disclosed its attempt to use nuclear weapons after listing the DPRK as part of “an axis of evil” and a target of “preemptive nuclear attack.” This prompted us to judge that the Bush administration is going to stifle our system by force and decide to build a strong deterrent force to cope with it. Hence, we determined to possess that force. . . . It is a means for self- defense to protect our sovereignty. [95]

Security Interaction. After President Bush’s election, a series of radical shifts in America’s military doctrine made it increasingly evident that more was going on than mere North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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rhetorical posturing: the Quadrennial Defense Review of September 2001 called for a paradigm shift from threat- to capability-based models; and the Bush doctrine of preemption, first proclaimed at West Point in June 2002, was officially enunciated and codified in The National Security Strategy of the United States of America in September 2002. The doctrine was implemented in Iraq in March 2003. As noted, North Korea pays very close attention to these public policy pronouncements, and it is not far-fetched to conclude that the DPRK’s willingness in October 2002 to confess having a HEU program was inspired by the bellicosity it found in these official U.S. policies. While U.S. Secretary of Defense Colin Powell was saying in June 2002 that the United States would be ready to meet with the DPRK “any time, any place, without precondition,” Robert Gallucci, America’s chief negotiator for the Agreed Framework, claims that the North Koreans interpreted this as a willingness on the part of Washington “to meet to accept North Korean surrender.” [96] In fact, as the United States was moving toward talks with the DPRK, in August 2002 the administration demanded that improvements be seen in relations between North Korea and Japan. With the second nuclear standoff, the United States has declared the Agreed Framework “effectively dead.” [97] To resolve the nuclear standoff that began in October 2002, the DPRK Ministry of Foreign Affairs issued a comprehensive and authoritative statement on October 25, detailing its version of what had actually occurred in the Kelly–Kang exchanges behind the scenes a few weeks earlier, and also describing the “grand bargain” offered by the North Korean negotiators to U.S. Assistant Secretary of the State James Kelly: The DPRK, with greatest magnanimity, clarified that it was ready to seek a negotiated settlement of this issue on the following three conditions: firstly, if the U.S. recognizes the DPRK’s sovereignty; secondly, if it assures the DPRK of nonaggression; and thirdly, if the U.S. does not hinder the economic development of the DPRK. . . . If the U.S. legally assures the DPRK of nonaggression, including the nonuse of nuclear weapons against it by concluding . . . a treaty, the DPRK will be ready to clear the former of its security concerns. [98]

There were no explicit calls for financial compensation from the United States. Subsequent North Korean pronouncements essentially adhered to the proposals outlined in the October 25 statement. At the first round of the Six Party talks in Beijing in August 2003, the DPRK offered a “package solution” deal. The DPRK offered to revive the Agreed Framework—without specifically referring to it as such—and to include a missile deal in exchange for the establishment of diplomatic relations with the United States and Japan, along with guarantees of economic cooperation between the DPRK and Japan and between the DPRK and the ROK. Pyongyang suggested that the dismantling of its nuclear program was contingent on a lessening of U.S. hostility, that a nonaggression treaty was the benchmark of this lessening of hostility, that such a treaty must be of binding legal force, and that action must be taken simultaneously—”word for word, action for action.” [99] The North Koreans claimed that China, Russia, and South Korea were open to the package solution, whereas Japan and the United States remained focused on their own individual objectives. To solve the nuclear standoff by taking account of North Korea’s security concerns, the United States did explore the possibility of a multilateral security pact. Powell said in October

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2003, “It would be something that would be public, something that would be written, something that I hope would be multilateral.” [100] Powell’s staff was drafting sample agreements that he hoped would be acceptable to Pyongyang and would ease the impasse over its nuclear weapons programs. In the same month, President Bush indicated for the first time that the United States would offer a multilateral security guarantee to be signed by Pyongyang’s Northeast Asian neighbors and by Washington. Pyongyang responded quickly with a cautiously positive reaction. Through its UN mission, North Korea said, “We are ready to consider Bush’s remarks on the ‘written assurances of nonaggression’ if they are based on the intention to coexist with the DPRK and aimed to play a positive role in realizing the proposal for a package solution on the principle of simultaneous actions.” [101] In the third round of Six Party talks, held in June 2004, the United States outlined a denuclearization proposal. This proposal seemed like little more than a reformulation of the CVID mantra. North Korea was required to make the initial concessions without any guarantee of reciprocation from the United States. Whereas the requirements for the DPRK were quite specific, those for the United States were more ambiguous. Pyongyang raised the ante of its own brinkmanship diplomacy with the February 10, 2005, statement that it had “manufactured nukes for self-defense to cope with the Bush administration’s evermore undisguised policy to isolate and stifle the DPRK,” and that it was therefore “compelled to suspend participation in the [Six Party] talks for an indefinite period.” [102] The Western news media jumped on the fact that the announcement also contained North Korea’s first public declaration that it had nuclear weapons. The February 10 statement generated a flurry of intensive “bi-multilateral” consultations, and China’s preventive diplomacy with both Koreas reached the highest levels. On July 9, 2005, North Korea finally agreed to return for a fourth round of the Six Party talks later in the month. Suggesting there was no behind-the-scenes Chinese pressure, the DPRK showcased this breakthrough as stemming from bilateral “negotiations” between U.S. Assistant Secretary of State Christopher Hill (who replaced James Kelly as America’s top negotiator at the Six Party talks) and Kim Kye Gwan of the DPRK. [103] Tellingly, Kim Kye Gwan conveyed his government’s definitive and date-specific decision to return to the Six Party talks in the course of a 3- hour dinner meeting with Hill, an event hosted by the Chinese in Beijing on the eve of a scheduled trip to Pyongyang by Tang Jiaxuan (state counselor and former foreign minister) as part of Chinese efforts to bridge differences between the United States and the DPRK. The Bush administration’s sudden escalation of verbal attacks on North Korea’s longknown counterfeiting, drug trafficking, and other crimes in the wake of the September 19, 2006, Joint Statement of Principles may have caught some observers by surprise, but it was hardly surprising for many others. Predictably, the result was to scuttle and replace a new round of the Six Party talks with another round of the Washington-Pyongyang war of words, as Washington and Pyongyang unleashed verbal attacks on each other over activities outside the scope of the Six Party negotiations. North Korea’s human rights abuses and criminal activities have been known for years, and yet Washington has dealt with these issues apart from the Six Party talks because it always considered ending North Korea’s nuclear program to be its highest policy priority. By the end of 2005, even further delay appeared possible in negotiating implementation of the Joint Statement of Principles to eliminate Pyongyang’s nuclear program through a “words for words” and “action for action” process stipulated in the document. [104]

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More to the point, however, both Pyongyang and Washington showed little trust toward each other. “While in Washington the North Korean nuclear threat has been a major issue for the past decade,” as Gavan McCormack reminds us, “in Pyongyang the U.S. nuclear threat has been the issue for the past 50 years. North Korea’s uniqueness in the nuclear age lies first of all in the way it has faced and lived under the shadow of nuclear threat for longer than any other nation.” [105] With the coming of the Bush administration, Pyongyang has had even more reason to distrust Washington, given the way the United States first appropriated North Korean national identity by making it a charter member of the “axis of evil” and then pursued a hardline policy (although this has proceeded in fits and starts due in no small measure to America’s ongoing challenges in Iraq, the first test case of the Bush doctrine for the three charter members of the “axis of evil”). Economic Interaction. Following North Korea’s invasion of the South in June 1950, the United States imposed a nearly complete economic embargo on the DPRK. During the next 4 decades, the scope and specificity of U.S. sanctions steadily expanded. Article II of the U.S.DPRK Agreed Framework of 1994 stated, “Within 3 months of the day of this Document, both sides will reduce barriers to trade and investment, including restrictions on telecommunications services, and financial transactions.” In March 1995, the U.S. Department of Commerce approved the sale of 55,000 tons of corn to North Korea by a U.S. grain dealer, opening the door to U.S. exports to the DPRK. In the mid- 1990s, Washington approved a number of transactions on a case-by-case basis, including telecommunications link-ups, tourist excursions, airline overflight payments, purchases of North Korean magnesite, and a grain-for-zinc barter deal. [106] Finally, in September 1999, almost 50 years after the initial export embargo, President Bill Clinton announced that the United States would ease economic sanctions against North Korea affecting most trade and travel, thereby ending the longest-standing trade embargo in U.S. history. Many items that had previously required a license were now eligible for export without a license; certain items on the Commerce Control List (CCL) moved from a policy of denial status to case-by-case review. Today, trade and related transactions generally are allowed for non–dual-use goods (dualuse goods are those that may have both civilian and military uses) if a set of overarching conditions is met. To lift all export controls applied to North Korea, Pyongyang first would have to be removed from the State Department list of countries supporting acts of international terrorism. The United States also cannot extend Normal Trade Relations status—formerly called Most- Favored Nation status—to North Korea because of the restrictions included in the 1951 Trade Agreement Extension Act that prohibited extending such status to communist states. Pursuant to the Trade Act of 1974, this lack of status also excludes the DPRK from the Generalized System of Preferences (GSP). U.S. citizens may, however, travel to North Korea, and there are no restrictions on the amount of money one may spend in transit or while there. Assets frozen prior to June 19, 2000, remain frozen. Despite the easing of most trade restrictions, trade and investment between North Korea and the United States has remained virtually nonexistent and also highly politicized. As shown in Table 4, U.S.-DPRK trade is almost entirely in one direction: the United States exports moderate amounts of mostly agricultural goods to North Korea and imports virtually nothing from the DPRK. South Korea’s trade with the United States in a single day in 2005 ($196 million) is almost two times greater than the combined total of North Korea’s trade with the United States in the 16-year period 1990-2005 ($100 million). America’s economic sanctions have certainly denied Pyongyang access to the world’s largest market, but North

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Korea has met with only limited success in selling its products in other markets where no sanctions existed. The history of U.S.-Korean relations—especially U.S.-DPRK relations, from the General Sherman incident to the recent standoffs over North Korea’s nuclear pursuits—teaches us that the conflict between the United States and North Korea often goes beyond considerations of power. The U.S.-DPRK conflict has deep historical roots born in war and perpetuated for more than half a century. The present conflict is not simply about nuclear weapons but rather about competing worldviews and perceptions of self and others. Rhetorically, it is as much about putative good and evil as about international security. The war on terror that has followed from the 9/11 attacks has involved a Manichean lens in which states are either with the United States or against it. Because of the history of conflict, the DPRK automatically made the “against the United States” list. Table 4. U.S. Trade with North Korea, 1990-2005 (Units: U.S.$1 million)

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

Exports to North Korea 0.03 0.1 0.1 2.0 0.2 11.6 0.5 2.5 4.4 11.3 2.7 0.5 25.1 8.0 23.8 5.8

Imports Total North U.S. Trade from North Korean-U.S. Balance with Korea Trade North Korea 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.0 1.5 0.0

0.03 0.2 0.1 2.0 0.2 11.6 0.5 2.5 4.4 11.3 2.8 0.5 25.2 8.0 25.3 5.8

0.03 0 0.1 2.0 0.2 11.6 0.5 2.5 4.4 11.3 2.6 0.5 25.0 8.0 22.3 5.8

Percent Change in North KoreanU.S. Trade N/A +567% -50% +1900% -90% +5700% -96% +400% +76% +157% -75% -82% +4940% -68% +216% -77%

Sources: International Monetary Fund 1992, p. 247; 1993, p. 247; 1994, p. 265; 1995, p. 269; 1996, p. 275; 1997, p. 347; 1998, p. 280; MOFAT, 1998, pp. 396,401; 1999, pp. 481, 486; 2001, p. 497; available at www.mofat.go.kr/; KOTRA at www.kotra.or.kr; United States Department of Commerce; International Trade Administration at www.ita.doc.gov.

In effect, there is a resurgence of national identity at the nation-state level, and the divided nation-state of Korea is watching its two halves officially move closer to one another, while the United States remains a target for both appeals and scorn from both of those halves, to greater and lesser degrees. The United States now risks provoking negative responses from both Korean states if it pursues the wrong path, and it risks losing its place on the Korean peninsula if it is not proactive enough.

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Not since the North Korean invasion of South Korea in 1950 after U.S. troops had left the peninsula has the question of the U.S. future on the peninsula been subject to so many possibilities and contingencies.

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Inter-Korean Relations For nearly 2 decades after the “end” of the Korean War, the two Korean states talked about and sometimes acted out their competing unification visions only in the context of the overthrow or replacement of one national identity by the other. After the shock of President Nixon’s visit to China in the early 1970s, inter- Korean relations developed in fits and starts, mutating through four cycles of dialogue and reconciliation. [107] The first cycle, beginning in August 1971, entailed a series of seven Red Cross talks held alternately in Pyongyang and Seoul over 2 years, culminating in a joint communiqué in which both Koreas agreed to uphold three principles: (1) unification achieved through independent efforts; (2) unification achieved through peaceful means; and (3) national unity sought by transcending differences in ideas, ideologies, and systems. The second cycle of talks, running from September 1984 through February 1986, involved a flurry of contacts and exchanges in various functional and humanitarian fields; these talks reaffirmed the three principles of unification. The third cycle, which began in 1990 and was inspired in part by changes in global politics linked with the end of the Cold War, was more promising than the first two. It jump-started inter- Korean trade, eased the entry of the two Koreas into the UN as two separate but equal member states, and led to the drafting of two documents: the North–South Basic Agreement (officially known as “Agreement on Reconciliation, Nonaggression, and Exchanges and Cooperation between the South and the North”) and the “Joint Declaration of the Denuclearization of the Korean Peninsula.” With Kim Dae Jung’s inauguration as ROK president in February 1998, South Korea initiated the Sunshine Policy of opening to North Korea with a pledge not to undermine or absorb the DPRK. The new policy was based in part on explicit recognition that undermining the DPRK is simply not a viable policy option because of the disorder and destruction that would follow from a Northern collapse. [108] President Kim Dae Jung’s repeated pledges that the South has no intent “to undermine or absorb North Korea,” thus speaking to one of the key remaining fears in Pyongyang, stand out as one of the most significant steps toward accepting identity difference as an integral part of the gradual peace process. [109] The Sunshine Policy created the appropriate conditions—both in South Korea and in North Korea— for the historic inter-Korean summit of June 13–15, 2000, which catalyzed the fourth and most promising cycle—indeed, a turning point—of inter-Korean dialogue and cooperation. Without a doubt, the chief catalyst for the Pyongyang summit was President Kim Dae Jung’s consistent and single-minded pursuit of his pro-engagement Sunshine Policy. More than anything else, the offer of substantial if unspecified governmental aid to refurbish North Korea’s decrepit infrastructure was an important causal force behind Kim Jong Il’s decision to agree to the summit. Until Kim Dae Jung’s Berlin Declaration in March 2000 offering aid to the DPRK, [110] Pyongyang had taken a two-handed approach, attacking the Sunshine Policy as a “sunburn policy” on ideological grounds while simultaneously pursuing a mendicant strategy to extract maximum economic concessions. Before the official unveiling of the statement in Berlin, Seoul delivered an advance text to Pyongyang, Beijing, Moscow,

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Tokyo, and Washington, demonstrating that the Big Four had little to do with the initiation of the summit. The 2000 Pyongyang summit was most remarkable historically because it was initiated and executed by Koreans themselves with no external shock or great- power sponsorship. The previous inter-Korean accords had been responses to major changes external to the Korean peninsula, such as the 1972 joint communiqué after Nixon’s visit to China or the 1992 agreements following the demise of the Cold War. The Pyongyang summit, the first of its kind in the half-century history of politics of competitive legitimation and delegitimation on the divided peninsula, generated opportunities and challenges for the Big Four as they stepped back to reassess the likely future of inter-Korean affairs and the implications for their own national interests. The dramatic summit also led to some paradoxical expectations and consequences. Suddenly, at least from June to November of 2000, the capital city of Pyongyang, the city of darkness, became a city of diplomatic light and a primary arena for diplomatic influence and competition among the Big Four as inter-Korean relations returned to a more international field. The notion that the Pyongyang summit had improved prospects for melting the remnant Cold War glacier on the Korean peninsula seemed to have intensified the needs and efforts of the Big Four to readjust their respective Korea policies in response to rapidly changing realities on the ground. The North Koreans viewed and framed the summit, although native in origin, as a major concession to the United States and as a concrete step taken by the DPRK to fulfill one of the obligations in the 1994 Agreed Framework. [111] The United States was then expected to make major economic and strategic concessions. Pyongyang did its best to exploit the new connection with Seoul in order to speed up normalization talks with the United States and to gain access to bilateral and multilateral aid and foreign direct investment. In addition to the summit with Kim Dae Jung, the infamously reclusive Kim Jong Il also met first with Chinese President Jiang Zemin in a secret visit to Beijing in May 2000 and then with Russian President Vladimir Putin that July, after which he received a flurry of diplomatic missions to Pyongyang, including U.S. Secretary of State Madeleine Albright, Chinese Defense Minister Chi Haotian, and a European Union (EU) delegation. By early 2001, however, Pyongyang’s high hopes and expectations from the “Clinton in Pyongyang Shock” turned into the “Bush in Washington Shock,” with low and ever-diminishing returns. Furthermore, while the Joint Declaration speaks of economic cooperation and indeed has fostered significant growth in that area, it failed to address military and security matters, lacking even a general statement about working together for tension reduction and confidence-building. Pyongyang clearly desired to discuss security issues only with the United States. Tellingly, Pyongyang has held the administration in Washington hostage to the resumption of inter-Korean dialogue, at least from January 2001 to August 2002, breaching not only the letter and the spirit of the North- South Joint Declaration but also its own longstanding party line that Korean affairs should be handled without foreign intervention or interference. But the significance of the summit should not be underrated. It was all about mutual recognition and legitimation, and it succeeded in no small measure in finally bringing the two Koreas down from their hegemonic-unification dreamlands to acceptance of peaceful coexistence as two separate states. The single greatest accomplishment of the summit was to deliver a major blow to the fratricidal politics of competitive legitimation and delegitimation.

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Although the two Kims symbolically signaled their acceptance of each other’s legitimacy through their actions at the summit, neither of them enunciated a belief that reunification would be coming in the near future. Kim Dae Jung, in fact, predicted that it would take 20 to 30 years for the divided Korean peninsula to achieve national unification, even as North Korea declared for the first time to the domestic audience that “the issue of unifying the differing systems in the North and the South as one may be left to posterity to settle slowly in the future.” [112] The Joint Declaration produced by the summit, while initially limited in domain, adopted a functional “peace by pieces” approach to the Korean conflict. [113] In effect, economic relations were anointed as the practical pathway for the gradual development and institutionalization of a working peace mechanism for the two Koreas. The fourth article of the document used the term “national economy,” apparently assuming an eventual integration of North and South Korean economies. [114] It is worth noting in this connection that for the period from July 1972 to August 2005, covering all four cycles of dialogue and cooperation, 47 inter- Korean agreements were signed, breaking down as follows: one during the first cycle; none during the second cycle; 13 during the third cycle (December 1991– July 1994); and 33 during the fourth cycle (April 2000– August 2005). Inter-Korean dialogue and cooperation came to a halt during the first 20 months of the Bush administration (from January 2001 to August 2002)— not a single inter-Korean accord was signed—but Pyongyang returned to inter-Korean dialogue in late August 2002, signing no less than six accords through the end of 2003. [115] Almost in tandem with the simmering U.S.- DPRK nuclear standoff and the coming of the Roh Moo-hyun government, both the speed and scope of inter-Korean talks and cooperation have accelerated, and nearly 100 rounds of official government-level meetings have been held since the inauguration of the “Policy of Peace and Prosperity” by the Roh administration in February 2003. Of course, the second U.S.-DPRK nuclear standoff could overshadow but not reverse some remarkable achievements in inter- Korean relations in all issue areas from August 2002 to mid-2006. With the election in December 2002 of Roh Moohyun, an offspring candidate of the “386 generation,” North Korea finds “its most cooperative South Korean government ever. . . . Roh emphasized even more strongly than his predecessor that inter- Korean economic cooperation would continue and that dialogue and economic inducements were the best means to bring about positive change in North Korea’s behavior.” [116] Pyongyang’s view of the state of inter-Korean relations also has evolved to such an extent that it could confidently declare in its Joint New Year (2003) Editorial: “It can be said that there exists on the Korean Peninsula at present only confrontation between the Koreans in the North and the South and the United States.” [117] As shown in Table 5, inter-Korean trade registered a 5.2 percent decline from 2000 to 2001 but recorded a huge 59.3 percent increase from 2001 to 2002 and another impressive 51.5 percent increase from 2004 to 2005. In 2005 inter-Korean trade topped $1 billion for the first time, sufficing to make Seoul Pyongyang’s second largest trade partner after China. In fact, since 2002, South Korea has become and has remained the North’s second largest trading partner, surging ahead of Japan. Inter-Korean trade now constitutes 26 percent of North Korea’s total foreign trade (but alas, only 0.19 percent of South Korea’s total foreign trade).

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Table 5. South Korean–North Korean Trade, 1989–2005 (Unit: U.S.$1,000) 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

18,655 12,278 105,719 162,863 178,167 176,298 222,855 182,400 193,069 92,264 121,604 152,373 176,170 271,575 289,252 258,039 340,281

-34.2 761.0 54.1 9.4 -1.0 26.4 -18.2 5.8 -52.2 31.8 25.3 15.6 54.2 6.5 -10.8 31.0

69 1,188 5,547 10,563 8,425 18,249 64,436 69,639 115,270 129,679 211,832 272,775 226,787 370,155 434,965 439,001 715,472

1,621.7 366.9 90.4 -20.2 116.6 253.1 8.1 65.5 12.5 63.4 28.8 -16.9 63.2 17.5 0.9 63.0

18,724 13,466 111,266 173,426 186,592 194,547 287,291 252,039 308,339 221,943 333,437 425,148 402,957 641,730 724,217 697,040 1,055,753

-28.1 726.3 55.9 7.6 4.3 47.7 -12.3 22.3 -28.0 50.2 27.5 -5.2 59.3 12.9 -3.8 51.5

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Note: These figures include both transactional and nontransactional (i.e., noncommercial) trade. Sources: KOTRA at www.kotra.go.kr; ROK Ministry of Unification.

Trade with South Korea is in general de facto economic aid for North Korea, and the ROK has become one of the major sources of hard currency in the DPRK. [118] Beginning in the early 1990s with small exchanges of goods, trade, which was essentially the functional cornerstone of Kim Dae Jung’s Sunshine Policy, has continued despite nuclear tensions. Over the course of Kim Dae Jung’s and Roh Moo-hyun’s presidencies, inter-Korean trade registered a nearly five-fold increase from $221 million in 1998 to $1,055 million in 2005. One of the key components of this trade is processing-on-commission (POC) trade, in which South Korean companies export raw materials to the DPRK and then import finished or semifinished products. This type of trade involves the creation of new jobs in North Korea, some degree of technology transfer, a fair amount of investment in the North from the South, and, most importantly, direct contact between North and South Koreans. Many of the POC plants that have been established use South Korean machinery and supervisors. By 2003, South Korean companies were making shoes, beds, television sets, and men’s suits in the North. [119] In addition, since the mid-1990s, Seoul has increased its flows of “nontransactional” trade, which is the exchange of noncommercial goods, such as those used in the now defunct KEDO reactor projects or for humanitarian aid. Nontransactional trade began in 1995 and has increased to such a degree that it is about 40 percent of total inter-Korean trade on the average. Overall, these increased trading relations are part of a program led by the ROK but accepted by the DPRK to create functional linkages between North and South in the interest of managing conflict, maintaining peace, and catalyzing eventual reunification. [120] Although trade may be growing and increasingly impressive, it is investment that will make the most difference for the North Korean economy and for economic relations in the

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interests of fostering peace on the peninsula. [121] Despite the self-reliant juche philosophy that undergirds the DPRK’s national identity, the newly-minted Kaesong Industrial Complex (KIC) in North Korea already has attracted attention from a number of small- and mediumsize companies in South Korea. The reconnection of roads and railways between the two countries—what President Kim Dae Jung characterized as de facto unification—will reduce the transaction costs of trade and embed both countries in a larger Northeast Asian trading system. Pyongyang has recognized the essential need to open itself to foreign economic agents and has undertaken legal reform to encourage investment and trade. South Korea is the most likely source of the funding that can revitalize or at least stabilize the DPRK’s economy. What many realists dismissed as beyond the realm of possibility only a few years ago is now happening, as raw materials and finished products are passing along and through what was once considered a major invasion route. [122] This “peace by pieces” functional cooperation provides ways of living with identity differences on the divided Korean peninsula rather than fighting about them. In addition, cultural and social exchanges, though not as revolutionary as some had hoped, have continued unabated. Since its opening in November 1998, the Mt. Kumgang project has increased the number of South Koreans who travel to the North. With the reestablishment of road and rail links between the two Koreas, along with the demining of areas of the DMZ around these links, South Korean tour buses made the first overland tours to Mt. Kumgang in North Korea in over 50 years, and the South Korean conglomerate Hyundai continued work on industrial plants in Kaesong in the North. Civilian exchanges and cooperation are surging substantially as well. In 2005 alone, the number of people who traveled between the two Koreas reached 88,341, surpassing the total number of people exchanges for the past 60 years. The normative and functional spillovers from growing inter-Korean dialogue and reconciliation can be seen in several noneconomic domains. After more than half a century of politics of competitive legitimation and delegitimation, the leaders of the pro- Seoul Korean Residents Union in Japan (Mindan) and the pro-Pyongyang General Association of Korean Residents in Japan (Chongryun) met for the first time on May 17, 2006. They issued a joint statement pledging to turn their longstanding antagonism into reconcilation and cooperation. The joint statement was influenced greatly by the declared intentions of their respective “home states,” being based largely on the North-South Joint Declaration of June 15, 2000. Even in the military/ security domain, rare talks between North and South Korean generals in 2004 (the first of their kind) made progress on the establishment of naval radio contact to prevent firefights like those of 1999 and 2002 and also on the discontinuation of propaganda activities against each other along the 155-mile-long DMZ. As noted earlier, the convergence of the positions of Chinese and the two Koreas in the fourth round of Six Party talks is a remarkable event defying the conventional realist wisdom. Thus in a series of accords and agreements reached over the years, especially from 2000 to 2006, the relationship between North and South Korea has come quite close to that of mutually recognized sovereign states.

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EXPLAINING NORTH KOREA’S SECURITY- CUM-SURVIVAL STRATEGY As is amply made manifest in U.S.-DPRK nuclear confrontations and negotiations—and Pyongyang’s “package solution” proposal—there remains the inseparable linkage of security, development, and legitimacy in the conduct of North Korean foreign policy. Indeed, three types of crisis—security crisis, economic crisis, and legitimation crisis—all frame and drive North Korea’s security-cum-survival strategy in the post–Kim Il Sung era.

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The Quest for Security During the Cold War, Pyongyang’s main security concern was not so much to balance against or bandwagon with the United States as in coping with the twin security dilemmas of allied abandonment and allied entrapment. Ironically, it was the SinoSoviet conflict, not the U.S.-Soviet tensions, that most enhanced “the power of the weak.” In its security behavior, Pyongyang demonstrated a remarkable unilateral zigzag balancing strategy in its relations with Moscow and Beijing, taking sides if necessary on particular issues, while attempting at the same time to extract maximum payoffs in economic, technical, and military aid, but never completely casting its lot with one or the other. How can we then explain the paradox of the survival of post–Kim Il Sung North Korea in the post–Cold War era? The literature on asymmetric conflicts shows that weaker powers have engaged in wars against stronger adversaries more often than not, and big powers frequently lose wars in asymmetric conflicts (e.g., the Vietnam War). [123] According to a recent study, weak states were victorious in nearly 30 percent of all asymmetric wars in the approximately 200-year period covered in the Correlates of War data set. More tellingly, weak states have won with increasing frequency as the modern era approached. [124] Weaker states also have initiated many brinkmanship crises that fell short of war, a strategy that North Korea has employed repeatedly. [125] A consideration of multiple and mutually interactive influences can help us answer the puzzle of Pyongyang’s uncanny resilience and “the power of the weak” in the context of the DPRK-U.S. nuclear confrontation. Drawing theoretical insight from asymmetric conflict and negotiation theory, we may postulate that the power balance in an issue-specific relationship and the performance of the weaker state are affected by four key variables: the weak state’s proximity to the strategic field of play; the availability to the stronger state of feasible alternatives; the stakes involved for both states in conflict and the degree of their resolve; and the degree of control for all involved parties. [126] As a weaker state in conflict with a superpower and its allies (South Korea and Japan), North Korea has relied upon issue-specific and situation-specific power, the effectiveness and credibility of which has required resources other than the traditional elements of national power. North Korea’s proximity to the strategic field of play, its compensating brinkmanship strategy, the high stakes involved, and its governmental resolve and control have all reinforced one another to make a strong actor’s aggregate conventional power largely less relevant. North Korea has adopted a wide range of tactics in and out of the asymmetric

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conflict and negotiation processes in order to reduce the opponent’s alternatives and weaken the opponent’s resolve and control. The geographical position of the DPRK is one of the most compelling and immutable factors in Pyongyang’s survival strategy. Since countries can change their leaders, systems, policies, and strategies but cannot change their location, “geography or geopolitics has long been the point of departure for studies of foreign policy or world politics.” [127] Surrounded by all four major powers and its southern rival, North Korea’s home turf is the strategic field of play from which it exercises its brinkmanship or plays its collapse card. Contrary to the conventional realist wisdom, in asymmetrical conflict and negotiations the strong state does not ipso facto exert greater control than the weak state. If a smaller and weaker state occupies territory of strategic importance to a larger and stronger state, or if the field of play is on the weak actor’s home turf (as was the case in the U.S.-Panama negotiations and British-Iceland Cod Wars), the weaker state can deploy bargaining clout disproportionate to its intrinsic coercive potential. [128] The ineluctable fact that North Korea is at the center of the strategic crossroads of Northeast Asia where the Big Four uneasily meet and interact has served rather well in bolstering Pyongyang’s control. By dint of its proximity to what Peter Hayes called “the fuse on the nuclear powder keg in the Pacific,” [129] Pyongyang has leveled the field of play so as to wield greater control than the United States by constantly changing the rules of entry and the rules of play in the pursuit of its preferred outcome. North Korea’s manifest preference for direct bilateral negotiations with the United States also is a way of seeking the home court advantage to maximize its control in the asymmetric conflict and negotiation process. Consider as well how Pyongyang’s geographical position, combined with its military of 1.2 million members and its asymmetric military capabilities, provides ample fodder for its survival-driven leverage diplomacy with South Korea and the United States. Some 70 percent of its active force—700,000 troops, 8,000 artillery systems, and 2,000 tanks—are forwarddeployed near the DMZ. Seoul, where one-fourth of South Korea’s 49 million people live and where nearly 75 percent of the country’s wealth is concentrated, is only 40 kilometers (25 miles) from the DMZ and thus within easy reach of North Korean jet fighters, armored vehicles, Scud missiles, and artillery guns. Within minutes, Pyongyang could turn Seoul into “a sea of fire,” as it threatened to do in the heat of the first nuclear crisis of mid-1994. Any ultimate Allied triumph would be a Pyrrhic victory since such devastation would be crippling to South Korea. [130] Without launching such an armed invasion, Pyongyang could still exercise its “negative power” or even play its collapse card to spawn instability on the divided Korean peninsula. One of the underlying rationales for the inauguration of the Kim Dae Jung administration’s “sunshine policy” was that potential implosion or explosion in the North would put at risk South Korea’s recovery from the 1997–98 financial crisis by discouraging foreign direct investment inflows. The financial crisis served as a wake-up call regarding the consequences of North Korea’s prospective collapse. Hence, to deter or delay the economic effects of a North Korean hard landing as long as possible, the sunshine policy became South Korea’s default policy. [131] In March 2005 President Roh Moo-hyun publicly declared, “We will not be embroiled in any [armed] conflict in Northeast Asia against our will. This is an absolutely firm principle we cannot yield under any circumstances.” [132] North Korea’s geographical location is also of considerable strategic concern to NEA’s Big Four. Located at the pivot point of the NEA security complex and at the most important

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strategic nexus of the Asia- Pacific region, Pyongyang is capable, by hostility or instability, of entrapping any or all of the Big Four in a stairstep of conflict escalation these governments would rather avoid. If Pyongyang’s brinkmanship or Washington’s sanctions or regimechange strategy escalate to war, the cost to all parties would be exorbitant. Concomitant to Pyongyang’s survival strategy are the limitations of Washington’s issuespecific power to pressure Pyongyang and the lack of palatable alternatives to negotiation. The twisted logic of a self- styled juche kingdom is that it is not as vulnerable as a normal state to public shaming and the various sanction tools of traditional statecraft. The acceptable nonnegotiation alternatives available to the United States in the resolution of the North Korean nuclear and missile issues have remained severely limited. The credible threats of surgical military strikes and enforceable economic sanctions against Pyongyang were considered but rejected because of the Pentagon’s objections, Seoul’s vulnerability, China’s veto threat, and even Tokyo’s reluctance. William Perry— reflecting on his involvement in the emergency national security meeting of June 16, 1994, regarding the most serious North Korean nuclear brinkmanship crisis of his tenure as Secretary of Defense—writes about a third-way option for a negotiated deal in the face of the extremely limited alternatives available to U.S. policymakers: “We were about to give the president a [third-way] choice between a disastrous option—allowing North Korea to get a nuclear arsenal, which we might have to face someday—and an unpalatable option, blocking this development, but thereby risking a destructive nonnuclear war.” [133] Given all the constraints on America’s issue-specific power, the rise of a cost- aware foreign policy, and the collapse of a bipartisan foreign policy consensus in the 1990s, the U.S.-DPRK Agreement of October 21, 1994, could be said to be the worst deal, except that there was no better alternative. For Beijing—and to a lesser extent for Seoul, Moscow, and Tokyo—Washington’s sanctions diplomacy in mid-1994 emerged as a no-win proposition, as it would bring about the worst of two possible outcomes. It could be ineffective in controlling nuclear proliferation since it could only strengthen the determination of the North Korean leadership to go nuclear, or it could destabilize a North Korean regime that would then dump many of its ill-fed, fleeing refugees on China’s northeastern and Russia’s far eastern provinces. Thus, paradoxically, Pyongyang’s growing difficulties and threat of collapse have increased its bargaining leverage relative to its weak intrinsic power. Another consideration regarding leverage in asymmetrical negotiations is the matter of relative and absolute stakes and resolve. The higher the stakes for a state actor in the process of bargaining, the more it is willing to commit its resources and the greater its resolve to attain a favorable negotiation outcome. The issue of stakes may have a crucial part in explaining why the weaker North Vietnam ultimately achieved victory during the Vietnam War fought on Vietnamese turf. Similarly, North Korea has been disadvantaged against the United States in the overall correlation of forces, but there also remained a clear asymmetry in survival stakes and resolve favoring Pyongyang— to wit, Washington’s apprehensions regarding the integrity of the NPT regime. Compare America’s relatively nonchalant reaction to the nuclear breakout states India and Pakistan with U.S. nervousness in the face of a Pyongyang bolstered by fear for its survival and consequent highest possible resolve. Of course, resolve without capability and willingness to use force is the mark of a paper tiger, and as such it cannot work in asymmetrical negotiation. With the end of the Cold War and with Moscow-Seoul normalization, the nuclear card suddenly became a very potent lever

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for North Korea. The DPRK has striven to use its nuclear weapons program as an allpurpose, cost-effective instrument of foreign policy. For Pyongyang, the nuclear program is a military deterrent, an equalizer in national identity competition with South Korea (which lacks nuclear weapons), a bargaining chip for extracting economic concessions from the United States and China, and a cost-effective insurance policy for regime survival. International uncertainty surrounding actual nuclear capabilities, deliberately nurtured by North Korea, has gone a long way for that small country. It is through the combination of putative military power and the on-again, off-again tit-for-tat diplomacy on the part of Pyongyang that it has gained not only the upper hand over the forces that seek to crush it, but also economic assistance from wealthy capitalist countries. All such manna has come from the abiding fear of war held by those nations that regard North Korea as an enemy. [134] To abandon such a military posture, including its nuclear capability, would be to leave Pyongyang without the single most important lever in its asymmetric conflicts and negotiations with South Korea, the United States, and Japan. Instead, Pyongyang follows its own third way — a maxi-mini strategy, doing the minimum necessary to get the maximum possible aid from South Korea and other countries without reducing its minimum deterrent military power. North Korean nuclear and missile brinkmanship also illustrates with particular clarity that when the enactment of a national identity is blocked in one domain, it seeks to compensate in another. From Pyongyang’s military-first perspective, developing asymmetrical capabilities such as ballistic missiles and WMD serves as strategic sine qua non in its survival strategy, as well as an equalizer in the legitimacy war and status competition with the South. It remains one of the few areas in which the DPRK commands a comparative advantage in the military balance of power with the South. North Korea’s humiliating defeat by its southern counterpart in the first-ever naval clash in June 1999 further emphasizes its WMD and ballistic missiles as a strategic equalizer. In short, Pyongyang’s proximity to the strategic field of play, its high stakes, resolve, and control, its relative asymmetrical military capabilities, and its coercive leverage strategy have all combined to enable the DPRK to exercise bargaining power far disproportionate to its aggregate structural power. That said, however, Kim Jong Il’s pronounced commitment to survival strategy would not stand in the way of his demonstrating situation-specific flexibility, especially in foreign policy. Indeed, Pyongyang has pursued a great variety of coping strategies, such as brinkmanship, beggar diplomacy, tit-for-tat cooper- ative strategy, overseas arms sales, appeals for humanitarian aid, and on-again, off-again joint-venture projects, to generate desperately needed foreign capital.

The Quest for Development During the long Cold War years, geopolitics and ideology combined to make it possible for Pyongyang to gain significant economic, military, and security benefits from larger socialist allies, especially Moscow and Beijing, and to claim thereby that the North Korean system was a success. In the late 1950s and much of the 1960s, the political economy of North Korea did indeed seem headed toward becoming an exceptional model of an

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autocentric, socialist, and self-reliant national economy afloat in the sea of the capitalist world system. Determined not to be outperformed in the legitimation-cum-economic war, in 1972 Pyongyang launched its first international shopping expeditions for capital and technology, accumulating in a few years (1972 to 1975) a trade deficit of about $1.3 billion with nonCommunist countries and $700 million with Communist countries. This was the genesis of Pyongyang’s debt trap. [135] Hit by the rapidly deteriorating terms of trade (the oil crisis and declining metal prices), Pyongyang defaulted on its debts in 1975, with the dual consequences of effectively cutting itself off from Western capital markets and becoming more dependent on the Soviet Union than ever before. The situation worsened in the late 1980s as opportunities to grow through marshaling greater resources began to dwindle and as relations began to deteriorate with the principal socialist patron, Gorbachev’s Soviet Union. This forced Pyongyang to become more dependent on other socialist countries for support. The collapse of the Soviet Union and the subsequent breakup of the Eastern bloc was a major macroeconomic shock that ushered in a period of as yet unchecked decline. [136] One of the most telling paradoxes of North Korea’s political economy during the Cold War is the extent to which Pyongyang successfully managed to have its juche (self-reliance) cake and eat it too. As an appealing legitimating principle, juche often has been turned on its head to conceal a high degree of dependence on Soviet and Chinese aid. Between 1948 and 1984, Moscow and Beijing were Pyongyang’s first and second most important patrons, supplying $2.2 billion and $900 million in aid, respectively. [137] Thanks to the East-West and Sino-Soviet rivalries during the Cold War, Pyongyang was allowed to practice such concealed mendicant diplomacy. The collapse of the Soviet Union was the most serious shock to socialist North Korea, not only for the cessation of aid and the virtual demise of concessional trade (dropping from 56.3 percent in 1990 to 5.3 percent in 2000), but also because it delivered a wrenching blow to the much- trumpeted juche-based national identity. North Korea’s economic collapse in the 1990s was the inevitable result of Pyongyang’s massive expendi- tures on military preparedness and the demise of Soviet aid and trade. In a contradictory yet revealing manner, Pyongyang admitted as much when it attributed the failure of the Third Seven-Year Plan (1987 to 1993) to a series of adverse external shocks: the “collusion between the imperialists and counter-revolutionary forces” and the “penetration of imperialist ideology and culture” that had accelerated the demise of the Second (Socialist) World and the end of Soviet aid. [138] As much as Pyongyang may blame the economic crisis on such external shocks or on natural disaster at home, the root causes of the economic crisis are deeply systemic. The adverse external circumstances in the early 1990s and the bad weather in 1995 and 1996 served only as triggering and exacerbating factors. The political economy of post–Kim Il Sung North Korea finds itself in a vicious circle: a successful export strategy is not possible without massive imports of high-tech equipment and plants, which in turn would not be possible without hard-currency credits, which in turn would not be possible without first paying off its foreign debts through a successful export strategy, and so on. The defining features of North Korea’s external economic relations in the post–Cold War era include: (1) the extreme degree to which markets were repressed, with the resulting shrinkage of foreign trade; (2) a chronic trade deficit; (3) a lack of access to international capital markets due to the 1975 debt default; and (4) a highly unusual balanceof-payments profile that must be financed in highly unconventional ways. [139]

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As shown in Tables 6 and 7, Northeast Asia figures most prominently in North Korea’s foreign trade, with China (40 percent), South Korea (26 percent), Russia (6 percent), and Japan (4.8 percent), in that order, accounting for more than 77 percent of Pyongyang’s total global trade in 2005. The first 5 years of the new millennium (2001–05) have brought about significant changes in the pattern and volume of North Korea’s foreign trade. While total volume increased by 52 percent (from $2.67 billion in 2001 to $4.0 billion in 2005), China’s and South Korea’s shares increased by 114 percent (from $737.5 million to $1,580 million) and 162 percent (from $403 million to $1,055 million), respectively. Table 6. North Korea’s Foreign Trade (Excluding North-South Trade), 1990-2005 (Unit: U.S.$ million) Export

Import

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Year

Growth Rate Volume (%) 1990 1,733 1991 945 -45.5 1992 933 -1.3 1993 990 6.1 1994 858 -13.3 1995 736 -14.2 1996 726 -1.4 1997 904 24.5 1998 559 -38.2 1999 515 -7.9 2000 556 8.0 2001 650 16.9 2002 735 13.1 2003 777 5.7 2004 1,020 31.3 2005

Total

Volume

Growth Rate (%) Volume

Growth Rate (%)

2,437 1,639 1,622 1,656 1,242 1,316 1,250 1,272 883 965 1,413 1,620 1,525 1,614 1,837

-32.7 -1.0 2.1 -25.0 6.0 -5.0 1.8 -30.6 9.3 46.4 14.6 -5.9 5.8 13.8

-38.0 -1.1 3.6 -20.6 -2.3 -3.7 10.2 -33.8 2.6 33.1 15.2 -0.4 5.8 19.5 5.0

4,170 2,584 2,555 2,646 2,100 2,052 1,976 2,177 1,442 1,480 1,970 2,270 2,260 2,391 2,857 3,000

Sources: ROK Ministry of Unification and Korean Trade Association (KOTRA).

Table 7. North Korea’s Top Trading Partners (Including North-South Trade) (Unit: U.S.$ million) 2001 Country Trade Volume China 737.5 South 403.0 Korea Thailand 130 Japan 474.7 Russia 68.3 India 157.8 Others 702.1 Total 2,673.5

Share (%) 27.6%

2002 Trade Share Volume (%) 738.0 25.4%

15.1%

641.7

4.9% 17.8% 2.6% 5.9% 26.3% 100%

216.6 369.5 80.7 191.7 663.9 2,902.1

2003 Trade Volume 1,022.9

Share (%) 32.8%

2004 Trade Volume 1,385.2

2005 Share Trade Share (%) Volume (%) 39.0% 1,580.3 39.0%

22.1% 724.2

23.2%

697.0

19.6% 1,055

26.0%

7.5% 12.7% 2.8% 6.6% 22.9% 100%

8.2% 8.5% 3.8% 5.1% 18.4% 100%

329.9 252.6 213.4 135.0 541.0 3,554.1

9.3% 7.1% 6.0% 3.8% 15.2% 100%

329 195 232

8.1% 4.8% 5.7%

4,055

100%

254.3 265.3 118.4 158.4 572.0 3,115.5

Sources: KOTRA and ROK Ministry of Unification.

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Japan’s share declined from 17.8 percent to 4.8 percent ($475 million to $195 million), while Russia’s share increased from 2.6 percent to 6.0 percent ($68.3 million to $213.4 million). Seen in this light, Chinese-style reform and opening are widely believed to be the most promising way out of the poverty trap. Post-Mao China’s record doubling of per capita output in the shortest period (1977-87) [140] should serve as inspiration to North Korea to follow this path. Yet Pyongyang has issued mixed and contradictory signals and statements about post-Mao Chinese socialism. In six informal summit meetings between 1978 and 1991, Deng Xiaoping repeatedly urged Kim Il Sung to develop the economy through reform and opening. This only provoked Kim Il Sung’s testy retort, “We opened, already,” in reference to the Rajin-Sonbong Free Economic and Trade Zone. [141] In September 1993, however, Kim Il Sung reportedly told a visiting Chinese delegation that he admired China “for having achieved brilliant reforms and openness” while continuing to build “socialism with Chinese characteristics.” He also stated that the Chinese experience would become “an encouraging factor for us Koreans.” [142] In a May 1999 meeting with Chinese Ambassador Wan Yongxiang in Pyongyang, Kim Jong II is reported to have said that he supported Chinesestyle reforms. In return, he asked Beijing to respect “Korean-style socialism.” [143] The North Korean government admitted in January 2001 the need for “new thinking” to adjust ideological perspectives and work ethics to promote the “state competitiveness” required in the new century. [144] This admission was accompanied by Kim Jong Il’s second “secret” visit to Shanghai in less than 8 months (January 15–20, 2001) for an extensive personal inspection of “capitalism with Shanghai characteristics.” These developments prompted a flurry of wild speculation about juche being Shanghaied and North Korea becoming a “second China.” Despite North Korea’s seeming determination to undertake economic reform and the popular perception that Chinese-style reform and opening are the most promising way, there are at least five major obstacles. First, China’s reform and opening came about during the heyday of the revived Cold War when anti-Soviet China enjoyed and exercised its maximum realpolitik leverage, as was made evident, for instance, in Beijing’s easy entry into the World Bank and IMF in May 1980. Second, China’s economic reforms were tied to a political changing of the guard: the ascendancy of Deng Xiaoping as the new paramount leader in December 1978 with the purging of the Gang of Four and Mao’s designated heir-apparent Huo Guofeng. Despite much speculation to the contrary, Kim Jong Il seems firmly positioned to remain in power and even to name his successor in the Kim dynasty. Third, unlike post-Mao China, North Korea does not have rich, famous, and enterprising overseas Koreans to generate the level of foreign direct investment that China attracted in the 1980s. Fourth, the agriculture-led reform process we have seen in East Asian transitional economies simply may not be available to North Korea, due to the very different initial conditions that resemble East European economies or the former Soviet Union more than China or Vietnam. The fifth obstacle has to do with Pyongyang’s Catch-22 identity dilemma. To save the juche system would require destroying important parts of it and also would require considerable opening to and help from its capitalist southern rival. Yet to depart from the ideological continuity of the system that the Great Leader Kim Il Sung (“the father of the nation”) created, developed, and passed onto the son is viewed not as a survival necessity but as an ultimate betrayal of raison d’état.

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Nonetheless, there has been some evidence of North Korea’s movement toward a system reform strategy. In 1991 the DPRK established the Rajin-Sonbong Free Economic and Trade Zone, which has since become the Rajin-Sonbong Free Economic Zone. [145] Pyongyang also agreed to participate in the TRADP, and recently created the Sinuiju Special Autonomous Region (SAR) on the Chinese border and also the Kaesong Industrial Complex for cooperating with South Korea. Between 1992 and 2000, the DPRK wrote 47 new laws on foreign investment, and a September 1998 constitutional revision mentions “private property,” “material incentives,” and “cost, price, and profit” in a document that otherwise reads like an orthodox manifestation of the DPRK’s juche philosophy. [146] During his visit to Shanghai in January 2001, Kim Jong Il highly praised the Chinese developmental model of reform and opening (with Shanghai characteristics). On July 1, 2002, North Korea enacted a set of major economic reform measures—known as “7.1 Measures”—with the main emphasis on marketization, monetarization, decentralization, and acquisition of FDI. Specifically, the DPRK adjusted its system of controlled prices, devalued the won, raised wages, adjusted the rationing system, opened a “socialist goods trading market,” gave farmers a type of property right regarding the cultivation of particular parcels of land, and extended laws for special economic zones. [147] More recently, against the backdrop of growing containment and encirclement sanctions by Washington and Tokyo, Pyongyang has found a new pair of patrons in South Korea and China, beefing up its system-reforming developmental strategy with North Korean characteristics. South Korea surged ahead of Japan as North Korea’s second largest trade partner in 2002 and inter-Korean trade hit an all-time high of over $1 billion in 2005. South Korea’s aid in various forms (rice, fertilizer, tourism, and direct investment in the Kaesong Industrial Complex) is now estimated to be about $1 billion, which is six times the level of 2000. [148] Kim Jong Il’s fourth state visit to China from January 10 to 18, 2006, coming on the heels of President Hu Jintao’s state visit to North Korea in October 2005, culminated a series of regular bilateral exchanges of visitations and interactions between Chairman Kim Jong Il and top Chinese leaders since 2000. These exchanges emphasized their shared concerns and determination to reconstruct and renormalize the relationship on a more solid and stable footing. Even though this was an unofficial (secret) state visit, Kim Jong Il received the red carpet treatment. All nine members of the Politburo Standing Committee of the Chinese Communist Party, the most powerful political organ of the Chinese system, were mobilized to welcome Kim Jong Il in a manner on par with the greeting a U.S. president would get. In effect, Beijing was showcasing to the outside world, especially the United States, its commitment to underwriting near abroad (North Korean) stability in order to safeguard the conditions for establishing a well-off society at home. By shifting gears from aid to a deeper system of trade and investment, China also is coaxing North Korea to follow the post-Mao Chinese style of reform and opening. In a short span of 5 years, China’s trade with North Korea jumped by a factor of 3.2, from $488 million in 2001 to $1.58 billion in 2005. Over 120 Chinese companies are reported to have moved to North Korea to engage in joint ventures in a bicycle factory, in the coal and natural resources sectors, and in plans to build transportation networks, including a new highway from Hunchun to Rajin. As if to demonstrate a tit-for-tat cooperative strategy, Kim Jong Il and his entourage (with no military officers) visited six Chinese cities (Guangzhou, Shenzhen, Zhuhai, Wuhan,

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Yichang, and Beijing) in 8 days, with a heavy emphasis on visits to industrial, agricultural, and educational facilities. For the record, and in terms warmer than during previous visits, Kim Jong Il is reported to have “provided expressive compliments to his hosts on the economic progress accomplished over little short of three decades” and declared that he had “trouble sleeping at night” during his visit because he was “pondering how to apply reforms to North Korea to generate the results he witnessed in Guangzhou.” In his official toast offering thanks to Hu Jintao for arranging the visit, Kim said that he was “deeply impressed” by China’s “shining achievements” and “exuberant development,” especially China’s hightech sector. [149] In the final analysis, any successful medium- and long-term coping strategy must be systemic, involving the institutional design and implementation of measures that are consistent and congruent across different and traditionally disparate areas of policymaking and also between domestic and foreign policies. While piecemeal tactical adaptations can yield some concessions and payoffs in the short run, a series of system reform measures pursued swiftly would yield both greater benefits and, perhaps, greater dangers.

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CONCLUSIONS There is something very old and very new in post- Cold War foreign relations of the DPRK, affirming the old saying, “The more things change, the more they remain the same.” As in the Cold-War era, the centrality of the Big Four in North Korea’s foreign policy thinking and behavior has remained unchanged. Indeed, the Big Four serve as the most sensitive barometer of the general orientation of North Korean foreign relations as a whole. To be sure, since 2000 North Korea has launched diplomatic outreach, establishing official relations with most EU member states, plus such other countries as Australia, Brazil, Canada, and Turkey. Pyongyang also became a member of the Asean Regional Forum (ARF) in 2002, gaining a political foothold in Southeast Asia. But few of these efforts have moved much beyond diplomatic formalities, and few really have concentrated the minds of key foreign policymakers in Pyongyang. Despite or perhaps even because of the great- power centrality, North Korea’s relations with the Big Four Plus One changed dramatically in the post-Cold War era, especially since 2000. What is most striking about post-Cold War North Korean foreign policy is not the centrality of the Big Four but rather the extent to which the United States has functioned as a kind of force-multiplier for catalyzing some major changes and shifts in Pyongyang’s international approach to affairs. North Korea has sought and found a new troika of lifesupporting geopolitical patrons in China, South Korea, and Russia and also a new pair of lifesupporting geo-economic patrons in China and South Korea, even as the dominant perception of the United States has shifted significantly from an indispensable life-support system to a mortal threat. As if to nod to the DPRK’s “tyranny of proximity,” however, all three of North Korea’s contiguous neighbors—China, Russia, and South Korea— strongly oppose what these countries perceive to be Washington’s goal of regime change. For example, the Bush administration’s original plan of forming broadest possible NEA united front against the DPRK on the nuclear issue eventually was turned on its head by Beijing’s mediation diplomacy at the second session of the fourth round of Six Party talks, culminating in the

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September 19, 2005, Joint Statement of Principles— the first-ever successful outcome of the on-again, off-again multilateral dialogue of more than 2 years. China successfully mobilized “the coalition of the willing” in support of its fifth and final draft of the Joint Statement— especially on the provision of a peaceful nuclear program (light-water reactor)—with three in favor (China, South Korea, Russia), one opposed (the United States), and one abstaining or split in its position between the two (Japan), creating an 3 1/2 and 1 1/2 vote against the U.S. position. China, South Korea, and Russia favor North Korea’s proposal of a step-by-step denuclearization process based on simultaneous and reciprocal (“words for words” and “action for action”) concessions. [150] By contrast, the Bush administration’s CVID formula would require North Korea to reveal and permit “the publicly disclosed and observable disablement of all nuclear weapons/weapons components and key centrifuge parts” before the United States indicates what incentives would be offered in return. With the situation in Iraq continuing to be a major challenge, the United States cannot afford an armed conflict in Northeast Asia, and this fact alone increases both North Korean and Chinese bargaining leverage in trying to chart a nonviolent course through the Six Party process. Beijing’s commitment to underwrite gradual re- form of North Korea as a cost-effective means of averting its collapse as well as establishing a harmonious and well-off society (xiaokang shehui) at home was brought into sharp relief during Kim Jong Il’s fourth trip to China. Expanded life and reform support for North Korea through direct assistance, a growing trade and investment relationship, and a trade deficit that serves as de facto aid were signs of China’s determination to beef up a series of major economic reform measures initiated in the second half of 2002 rather than risk system collapse or regime change by the Bush administration. Kim Jong Il’s visit also suggests that ties between the two socialist allies are becoming ever closer, both politically and economically, in tandem with the rapid deterioration of Pyongyang’s relations with Washington and Tokyo. Adept at playing great powers off against each other, Kim Jong Il will no doubt use Chinese support to stimulate more aid without becoming too dependent on South Korea and as a powerful counterweight to the United States and Japan. One thing that the collapsist school failed to realize is that Kim Il Sung’s death actually may have created a more stable DPRK. Kim Jong Il’s North Korea differs from that of his father, when the dream of unification involved the absorption of, not by, South Korea. As Georgy Bulychev suggests, “Kim Jong Il . . . is neither Nero nor Louis XIV—he thinks about ‘après moi’ and wants to keep the state in place, but he also understands that it is impossible to do this without change.” [151] In this context, a change in the regime’s strategic paradigm, rather than a change of the regime itself, looks more and more like the proper resolution to the broad concerns about North Korea’s future. [152] As it is easy to say with Korea—and particularly with anything involving North Korea— the future of North Korea’s relations with the Big Four Plus One is unclear. Indeed, it seems more unclear now than it did in the early to mid 1990s when a broad swath of academics and policy analysts was predicting the imminent collapse of the North Korean regime and the reunification of Korea. The interplay between North Korea and the outside world is highly complex, variegated, and even confusing. What complicates our understanding of the shape of things to come in North Korea’s foreign relations is that all countries involved have become moving targets on turbulent trajectories subject to competing and often contradictory pressures and forces.

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That said, however, the way the outside world— especially the Big Four plus Seoul— responds to Pyongyang is keyed closely to the way North Korea responds to the outside world. North Korea’s future is malleable rather than predetermined. This nondeterministic image of the future of the post–Kim Il Sung system opens up room for the outside world to use whatever leverage it might have to help North Korean leaders opt for one future scenario or another in the coming years. A cornered and insecure North Korea is an unpredictable and even dangerous North Korea that may feel compelled to launch a preemptive strike, igniting a major armed conflagration in the Korean peninsula and beyond. For geopolitical, geo-economic, and other reasons, Beijing, Moscow, Seoul, and even Tokyo would be happier to see the peaceful coexistence of the two Korean states on the Korean peninsula than to cope with the turmoil, chaos, and probable massive exodus of refugees that system collapse would generate in its wake. Despite the gloomy prospects for near-term movement on the negotiating front in Beijing, the Six Party process offers an opportunity to produce something larger than mere resolution of the specific issue of North Korea’s nuclear program. Not only is regional and global multilateralism now an integral part of security thinking in Beijing, Moscow, Seoul, and Tokyo, it also is a useful instrument for the much needed conflict management mechanisms in Northeast Asia. Therefore we should seize the twin historical opportunities of China’s rising multilateralism and the Six Party process in the interests of forming and institutionalizing a truly Northeast Asian security regime. The Northeast Asian states need to expand multilateral dialogue and economic integration in the interests of building order and solving problems. The U.S.-DPRK standoff risks derailing burgeoning Northeast Asian regionalism, yet it is this very regionalism that will help prevent future spirals like that characterizing both nuclear standoffs between the United States and North Korea.

REFERENCES [1]

[2]

See Michael Green, “North Korean Regime Crisis: US Perspectives and Responses,” Korean Journal of Defense Analysis Vol. 9, No. 2, Winter 1997, p. 7; and “North Korean Collapse Predicted,” The Associated Press, March 6, 1997. For a wide array of speculations and analyses on the future of post–Kim Il Sung North Korea, see Nicholas Eberstadt, “North Korea: Reform, Muddling Through, or Collapse?” NBR Analysis, Vol. 4, No. 3, 1993, pp. 5-16; idem, “Hastening Korean Reunification,” Foreign Affairs, Vol. 76, No. 2, March/April 1997, pp. 77-92; KyungWon Kim, “No Way Out: North Korea’s Impending Collapse,” Harvard International Review, Vol. 18, No. 2, Spring 1996, pp. 22-25, 71; Gavan McCormack, “Kim Country: Hard Times in North Korea,” New Left Review, No. 198, March- April 1993, pp. 21-48; Dae-sook Suh, “The Prospects for Change in North Korea,” Korea and World Affairs, Vol. 17, No. 1, Spring 1993, pp. 5-20; Robert Scalapino, “North Korea at a Crossroads,” Essays in Public Policy No. 73, Hoover Institution, Stanford University, 1997, pp. 1-18; Jonathan D. Pollack and Chung Min Lee, Preparing for Korean Unification: Scenarios and Implications, Santa Monica, CA: RAND, 1999; Nicholas Eberstadt, The End of North Korea, Washington, DC: The AEI Press, 1999;

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Marcus Noland, Avoiding the Apocalypse: The Future of the Two Koreas, Washington, DC: Institute for International Economics, 2000; Samuel S. Kim, “The Future of the Post-Kim Il Sung System in North Korea,” Wonmo Dong, ed., The Two Koreas and the United States, Armonk, NY: M. E. Sharpe, pp. 32-58; Kongdan Oh and Ralph Hassig, “North Korea Between Collapse and Reform,” Asian Survey, Vol. 39, No. 2, March/April 1999, pp. 287-309; Marcus Noland, North Korea After Kim Jong-il, Washington, DC: Institute for International Economics, 2004. [3] The Korea Times, February 1, 2000, Internet version. [4] For application of a common-security approach in the Korean case, see Samuel S. Kim, “The Two Koreas and World Order,” in Young Whan Kihl, ed., Korea and the World: Beyond the Cold War, Boulder, CO: Westview Press, 1994, pp. 29–65, especially pp. 56– 59; Mel Gurtov, “Common Security in North Korea: Quest for a New Paradigm in Inter-Korean Relations,” Asian Survey, Vol. 42, No. 3, May/June 2002, pp. 397–418. [5] Cited in Robert A. Pastor, “The Great Powers in the Twentieth Century: From Dawn to Dusk,” in Robert A. Pastor, ed., A Century’s Journey: How the Great Powers Shape the World, New York: Basic Books, 1999, p. 7. [6] Nicholas Eberstadt and Richard J. Ellings, “Introduction,” Nicholas Eberstadt and Richard J. Ellings, eds., Korea’s Future and the Great Powers, Seattle: University of Washington Press, 2001, p. 5. [7] According to the purchasing power parity (PPP) estimates of the World Bank, which are not unproblematic, China, with a 1994 GDP just less than $3 trillion, had become the second largest economy in the world, after the United States. By 2003, China’s ranking as the world’s second largest economy remained the same, but its global national income (GNI)/PPP more than doubled to $6,435 billion. See Economist, London, January 27, 1996, p. 102; World Bank, World Development Report 1996, New York: Oxford University Press, 1996, p. 188; World Development Report 2005, New York: Oxford University Press, 2004, p. 256. [8] The common use of “East Asia” and “Northeast Asia” as one and the same had to do with the fact that Asia, in general, and East Asia, in particular, are so overwhelmingly Sinocentric. As a result, the concept of East Asia “has conventionally referred only to those states of Confucian heritage.” See John Ravenhill, “A Three Block World? The New East Asian Regionalism,” International Relations of the Asia-Pacific, Vol. 2, No. 2, 2002, p. 174. [9] In the 2001 Quadrennial Defense Review Report, “Northeast Asia” and “the East Asian littoral” are defined as “critical areas” for precluding hostile domination by any other power. See United States Department of Defense, Quadrennial Defense Review Report, September 30, 2001, p. 2, at www.defenselink.mil/pubs/qdr2001.pdf, accessed January 15, 2002. [10] Edmund L. Andrews, “Shouted Down: A Political Furor Built on Many Grudges,” New York Times, August 3, 2005, p. C1. [11] See Barry Buzan and Rosemary Foot, eds., Does China Matter? A Reassessment, London: Routledge; 2004; Alastair Iain Johnston, “China’s International Relations: The Political and Security Dimensions,” in Samuel S. Kim, ed., The International Relations of Northeast Asia, Lanham, MD: Rowman and Littlefield, 2004, pp. 65–100; Robert Sutter, China’s Rise in Asia: Promises and Perils, Lanham, MD: Rowman & Littlefield,

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2005; and David Shambaugh, ed., Power Shift: China and Asia’s New Dynamics, Berkeley: University of California Press, 2005. For a detailed analysis, see Samuel S. Kim, “The Making of China’s Korea Policy in the Era of Reform,” in David M. Lampton, ed., The Making of Chinese Foreign and Security Policy in the Era of Reform, Stanford, CA: Stanford University Press, 2001, pp. 371- 408. “U.5.-DPRK Meeting Welcomed,” Beijing Review, May 17- 23, 1993, p. 7. See Andrew Scobell, China and North Korea: From Comradesin-Arms to Allies at Arm’s Length, Carlisle Barracks, PA: Strategic Studies Institute, U.S. Army War College, March 2004, p. 14; and David Shambaugh, “China and the Korean Peninsula: Playing for the Long Term,” Washington Quarterly, Vol. 26, No. 2, Spring 2003, p. 55. See Edward Cody, “China Tries to Advance N. Korea Nuclear Talks,” The Washington Post, July 31, 2005, A23; and “China Show Off Newfound Partnership at Six-Party Talks,” The Korea Herald, August 5, 2005. For an English text of the DPRK Ministry of Foreign Affairs’ statement of February 10, 2005, see KCNA, February 10, 2005, available at www.kcna.co.jp/item/2005/200502/ news0211.htm, accessed July 3, 2005. “Spokesman for DPRK Foreign Ministry on Contact between Heads of DPRK and US Delegations,” Korean Central News Agency, July 10, 2005. North Korea News 724, February 28, 1994, pp. 5–6; The Economist, March 26, 1994, p. 39. David Shambaugh, “China and the Korean Peninsula: Playing for the Long Term,” The Washington Quarterly, Vol. 26, No. 2, 2003, p. 46. Quoted in David Lampton and Richard Daniel Ewing, The U.S.-China Relationship Facing International Security Crises: Three Case Studies in Post-9/11 Bilateral Relations, Washington, DC: The Nixon Center, 2004, p. 70. Alvin Z. Rubinstein, “Russia’s Relations with North Korea,” in Stephen Blank and Alvin Rubenstein, eds., Imperial Decline: Russia’s Changing Role in Asia, Durham, NC: Duke University Press, 1997, p. 157. Nikolai Sokov, “A Russian View of the Future Korean Peninsula,” in Tsuneo Akaha, ed., The Future of North Korea, New York: Routledge, 2002, pp. 129–46. Quoted in Andrew Mack, “The Nuclear Crisis on the Korean Peninsula,” Asian Survey, Vol. 33, No. 4, April 1993, p. 342. Rodong Sinmun [Worker’s Daily], October 5, 1990, p. 2.; Andrew Lankov, “Cold War Alienates Seoul, Moscow,” The Korea Times, September 17, 2004, available at times .hankooki .com. Evgeny P. Bazhanov, “Korea in Russia’s Post Cold War Regional Political Context,” in Charles K. Armstrong, Gilbert Rozman, Samuel S. Kim, and Stephen Kotkin, eds., Korea at the Center: Dynamics of Regionalism in Northeast Asia, Armonk, NY: M. E. Sharpe, 2006, pp. 214-226. Rubinstein, “Russia’s Relations with North Korea,” p. 164. Celeste Wallander, “Wary of the West: Russian Security Policy at the Millennium,” Arms Control Today, Vol. 30, No. 2, March 2000, pp. 7–12; “Russia’s New Security Concept,” Arms Control Today, Vol. 30, No. 1, January/February 2000, pp. 15–20; Philip C. Bleak, “Putin Signs New Military Doctrine, Fleshing Out New Security Concept,” Arms Control Today, Vol. 30. No. 4, May 2000, p. 42.

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[28] For an English text of the Moscow Declaration, see KCNA, August 4, 2001, at www.kcna.co.jp/contents/05.htm. [29] Seung-ho Joo, “Russia and the Korean Peace Process,” in Tae-Hwan Kwak and SeungHo Joo, eds., The Korean Peace Process and the Four Powers, Burlington, VT: Ashgate, 2003, pp. 143–170. [30] It is worth noting in this connection that no other great power can match Russia’s summit diplomacy with both Koreas in the first 4 years of Putin’s presidency—three summit meetings with Kim Jong Il (July 2000 in Pyongyang, August 2001 in Moscow, and August 2002 in Vladivostok) and two summit meetings with South Korean presidents Kim Dae Jung in February 2001 in Seoul and Roh Moo-hyun in September 2004 in Moscow. [31] Alexandre Mansourov, “Kim Jong Il Re-Embraces the Bear, Looking for the Morning Calm: North Korea’s Policy Toward Russia Since 1994,” in Byung Chul Koh, ed., North Korea and the World: Explaining Pyongyang’s Foreign Policy, Seoul: Kyungnam University Press, 2004, pp. 239–284. [32] Quoted in Alexander Zhebin, “The Bush Doctrine, Russia, and Korea,” in Mel Gurtov and Peter Van Ness, eds., Confronting the Bush Doctrine: Critical Views from the AsiaPacific, New York: Routledge Curzon, 2005, p. 150. [33] Mansourov, “Kim Jong Il Re-Embraces the Bear, Looking for the Morning Calm,” pp. 282-284. [34] The DPRK Report, NAPSNET, No. 20, October 1999, p. 1. [35] Ibid., No. 24, p. 6. [36] Joo, “Russia and the Korean Peace Process.” [37] Zhebin, “The Bush Doctrine, Russia, and Korea,” p. 143. [38] Quoted in Elizabeth Wishnick, “Russia in Inter-Korean Relations,” in Samuel S. Kim, ed., Inter-Korean Relations: Problems and Prospects, New York: Palgrave Macmillan 2004, p. 126. [39] Joo, “Russia and the Korean Peace Process.” [40] Wishnick, “Russia in Inter-Korean Relations.” [41] Zhebin, “The Bush Doctrine, Russia, and Korea,” p. 144. [42] Peggy Falkenheim Meyer, “Russo-North Korean Relations,” Paper presented at the International Council for Korean Studies Conference 2005, Arlington, VA, August 5–6, 2005. [43] Yu Bin, ”China-Russia Relations: Presidential Politicking and Proactive Posturing,” Comparative Connections, Vol. 6, No. 1, 2004, pp. 125-136, available at www.csis.org/media/csis/pubs/0401q. pdf. [44] Ibid. [45] Rubinstein, “Russia’s Relations with North Korea,” p. 173. [46] See David Woodruff, Money Unmade: Barter and the Fate of Russian Capitalism, Ithaca, NY: Cornell University Press, 1999. [47] For an English text of the Moscow Declaration, see KCNA, August 4, 2001; emphasis added. [48] The DPRK Report, NAPSNET, No. 26, p. 2–3. See also Elizabeth Wishnick, “RussianNorth Korean Relations: A New Era?” in Samuel S. Kim and Tai Hwan Lee, eds., North Korea and Northeast Asia, New York: Rowman & Littlefield, pp. 139–162; Wishnick, “Russia in Inter-Korean Relations.”

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[49] AFP, August 4, 2001. [50] Georgi Toloraya, “Korean Peninsula and Russia,” International Affairs, Moscow, Vol. 49, No. 1, 2003, p. 28. [51] Wishnick, “Russian-North Korean Relations: A New Era?” [52] See C. S. Eliot Kang, “Japan in Inter-Korean Relations,” in Samuel S. Kim, ed., InterKorean Relations: Problems and Prospects, New York: Palgrave Macmillan, 2004, pp. 99-101. [53] The rice would have come from Tokyo’s own reserves of Japanese rice, which at the time was 12 times more expensive than Thai or Chinese rice. The total value amounted to 120 billion yen, more than $1 billion. [54] Victor Cha, “Japan-Korea Relations: Ending 2000 with a Whimper, Not a Bang,” Comparative Connections, 2001, pp. 88-93, available at www.csis.org/media/csis/ pubs/0401q.pdf. [55] Selig Harrison, “Did North Korea Cheat?” Foreign Affairs, Vol. 84, No. 1, 2005, pp. 99–110. [56] David Kang, “Japan: U.S. Partner or Focused on Abductees?” The Washington Quarterly, Vol. 28, No. 4, 2005, p. 107. [57] Hong Nack Kim, “Japanese-North Korean Relations Under the Koizumi Government,” in Hong Nack Kim and Young Whan Kihl, eds., North Korea: The Politics of Regime Survival, Armonk, NY: M. E. Sharpe, 2006, pp. 161-182. [58] For the mercantile realism interpretation of Japan’s foreign policy, see Eric Heginbotham and Richard Samuels, “Mercantile Realism and Japanese Foreign Policy,” International Security, Vol. 22, No. 4, 1998, pp. 171–203. For a greater elaboration of the logic of mercantile realism, see Robert Gilpin, War and Change in World Politics, New York: Cambridge University Press, 1981. [59] Kang, “Japan in Inter-Korean Relations.” [60] For a comprehensive discussion of the 1994 nuclear crisis, see Leon Sigal, Disarming Strangers: Nuclear Diplomacy with North Korea, Princeton, NJ: Princeton University Press, 1998; Young Whan Kihl and Peter Hayes, Peace and Security in Northeast Asia: The Nuclear Issue and the Korean Peninsula, Armonk, NY: M. E. Sharpe, 1997. [61] The satellite system was billed as “multipurpose” and was not included in the official defense budget. The decision to acquire the satellites required the Japanese government to override a Diet resolution of 1969 that limited the use of space technology to nonmilitary activities. Two satellites were launched in March 2003. Kang, “Japan in Inter-Korean Relations,” p. 107. [62] It has come to light recently that Japan had contemplated possible preemptive strikes against North Korean military sites in 1994. Ibid., p. 107. [63] Ibid., p. 108. [64] “Japan Intervention in Nuclear Issue ‘Ineffective’—North Korean Radio,” BBC-AAIW, January 27, 2003. [65] The Asahi Shimbun, April 21, 2006, available at www.asahi. com/english/Heraldasahi/TKY200604210152.html. [66] Japan Ministry of Foreign Affairs, Diplomatic Bluebook, 2004, Tokyo: Government of Japan, available at www.mofa.go.jp/policy/ other/bluebook/2004/index.html. [67] Tsuneo Akaha, “Japan’s Policy Toward North Korea: Interests and Options,” in Tsuneo Akaha, ed., The Future of North Korea, New York: Routledge 2002, pp. 77–94.

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[68] Richard Samuels, “Payback Time: Japan-North Korea Economic Relations,” in Ahn Choong-yong, Nicholas Eberstadt, and Lee Young-sun, eds., A New International Engagement Framework for North Korea? Contending Perspectives, Washington, DC: Korean Economic Institute of America, 2004, p. 324. [69] Christopher W. Hughes, Japan’s Economic Power and Security: Japan and North Korea, New York: Routledge, 1999, p. 133. [70] See Michael H. Armacost and Kenneth B. Pyle, “Japan and the Unification of Korea: Challenges for U.S. Policy Coordination,” in Nicholas Eberstadt and Richard J. Ellings, eds., Korea’s Future and the Great Powers, Seattle: University of Washington Press, 2001, p. 128. [71] Samuels, “Payback Time: Japan-North Korea Economic Relations,” p. 319. [72] Christopher W. Hughes, Japan’s Economic Power and Security: Japan and North Korea New York: Routledge, 1999, p. 132. [73] Mark E. Manyin, “Japan-North Korean Relations: Selected Issues,” Washington, DC: Congressional Research Service, November 26, 2003; Samuels, “Payback Time: JapanNorth Korea Economic Relations,” p. 320. [74] The Japan Times, June 30, 2003. [75] The Tokyo Shimbun, November 25, 2003. [76] Xinhua News Agency, “DPRK Slashes Japan’s Foreign Exchange Bill,” January 31, 2004. [77] Kim, “Japanese-North Korean Relations Under the Koizumi Government.” [78] Samuels, “Payback Time: Japan-North Korea Economic Relations,” pp. 331-332. [79] The Age, Melbourne, June 25, 2003. [80] See Robert Manning, “United States-North Korean Relations: From Welfare to Workfare?” in Samuel S. Kim and Tai Hwan Lee, eds., North Korea and Northeast Asia, Lanham, MD: Rowman & Littlefield, 2002, pp. 61–88. [81] Testimony of Mark Minton, director of the Office of Korean Affairs, before the Senate Foreign Relations Committee, Subcommittee on East Asian and Pacific Affairs, Washington, DC, September 12, 1996. [82] Joel S. Wit, Daniel B. Poneman, and Robert L. Gallucci, Going Critical: The First North Korean Nuclear Crisis, Washington, DC: Brookings Institution Press, 2004, p. 27. This book, written by three American participants, easily stands out as the most authoritative and comprehensive account of the first North Korean nuclear crisis. Wit was in the State Department and Poneman with the National Security Council, while Gallucci was American chief negotiator in Geneva during the first North Korean nuclear crisis. [83] The Pyongyang Times, June 18, 1994, p. 2. [84] The figure of 50 to 100 nuclear weapons is Perry’s extrapolation. See William J. Perry, “It’s Either Nukes or Negotiation,” Washington Post, July 23, 2003, p. A23. [85] Rodong Sinmun [Worker’s Daily], December 1, 1994. [86] See “Nuclear Nonproliferation—Implications of the U.S./ North Korean Agreement on Nuclear Issues,” GAO Report to the Chairman, Committee on Energy and Natural Resources, U.S. Senate, October 1996, GAO/ RCED/NSIAD-97-8. [87] William Perry, “Review of United States Policy Toward North Korea: Findings and Recommendations,” October 12, 1999, available at and www.state.gov/www/regions/ eap/991012_northkorea_ rpt.html.

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[88] KCNA, February 22, 2001. [89] Ibid., June 18, 2001. [90] See Bruce B. Auster and Kevin Whitelaw, “Upping the Ante for Kim Jong Il: Pentagon Plan 5030, A New Blueprint for Facing Down North Korea,” U.S. News & World Report, July 21, 2003, p. 21. [91] Jonathan D. Pollack, “The United States, North Korea, and the End of the Agreed Framework,” Naval War College Review, Vol. 56, No. 3, 2003, pp. 11–49. [92] Quoted in David Sanger, “Intelligence Puzzle: North Korean Bombs,” New York Times, October 14, 2003, p. A9. [93] Charles Pritchard, “A Guarantee to Bring Kim into Line,” The Financial Times, October 10, 2003. [94] Public Broadcast Service interview, Washington, DC, September 17, 1999, as provided by NAPSNet, September 30, 1999, available at www.nautilus.org/napsnet/dr/9909/ Sep20.html#item4. [95] KCNA, August 29, 2003. [96] “Bush’s Hard Line with North Korea,” New York Times, February 14, 2002. [97] CBS News, “Powell: U.S. — N. Korea Nuclear Deal Dead,” October 20, 2002, available at www.cbsnews.com/stories/2002/10/21/ world/main526243.shtml. [98] See KCNA, “Conclusion of Nonaggression Treaty between DPRK and U.S. Called For,” October 25, 2002, available at www. kcna.co.jp/item/2002/200210/news10/ 25.htm, accessed November 22, 2005. See also Michael O’Hanlon and Mike Mochizuki, Crisis onthe Korean Peninsula: How to Deal with a Nuclear North Korea, New York: McGraw-Hill, 2003, for a “grand bargain” proposal from an American perspective. [99] See KCNA, “Keynote Speeches Made at Six-way Talks,” August 29, 2003, available at www.kcna.co.jp/item/2003/200308/ news08/30.htm. [100] Agence France-Presse, “US Seeks Partners for Multilateral Security Pact with North Korea,” October 11, 2003. [101] KCNA, October 25, 2003, available at www.kcna.co.jp/ item/2003/200310/news10/ 27.htm. [102] For an English text of the DPRK Ministry of Foreign Affairs statement of February 10, 2005, see KCNA, February 10, 2005, available at www.kcna.co.jp/item/2005/200502/ news0211.htm, accessed July 3, 2005. [103] See “N. Korea, U.S. Could Spend More Time Alone Together,” Chosun IIbo, July 10, 2005. [104] See Donald G. Gross, “U.S.-Korea Relations: The Six- Party Talks: What Goes Up Can Also Come Down,” Comparative Connections, Vol. 7, No. 4, January 2006, p. 44. [105] Gavan McCormack, Target North Korea: Pushing North Korea to the Brink of Nuclear Catastrophe, New York: Nation Books, 2004, p. 150. For a similar analysis of U.S. nuclear hegemony in Korea, see Peter Hayes, “American Nuclear Hegemony in Korea,” Journal of Peace Research, Vol. 25, No. 4, 1988, pp. 351–364; Jae-Jung Suh, “Imbalance of Power, Balance of Asymmetric Terror: Mutual Assured Destruction (MAD) in Korea,” in John Feffer, ed., The Future of U.S.-Korean Relations, New York: Routledge, 2006. pp. 64-80.

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[106] See Nicholas Eberstadt, “U.S.-North Korea Economic Relations: Indications from North Korea’s Past Trade Performance,” in Tong Whan Park, ed., The U.S. and the Two Koreas: A New Triangle, Boulder, CO: Lynne Rienner, 1998, p. 121. [107] For a more detailed analysis, see Samuel S. Kim, ed., Inter-Korean Relations: Problems and Prospects, New York: Palgrave Macmillan, 2004. [108] Young Shik Yang, “Kim Dae-jung Administration’s North Korea Policy,” Korea Focus, Vol. 6, No. 6, 1998, p. 48. [109] Roland Bleiker, Divided Korea: Toward a Culture of Reconciliation, Minneapolis: University of Minnesota Press, 2005, p. xliii. [110] For a full English text, see Yonhap News Agency, March 9, 2000. [111] Article III(3) of the 1994 U.S.-DPRK Agreed Framework stipulates: “The DPRK will engage in North-South dialogue, as this Agreed Framework will help create an atmosphere that promotes such dialogue.” [112] Rodong Sinmun [Worker’s Daily], Pyongyang, June 25, 2000, p. 6, emphasis added. [113] For the theory of classical functionalism espousing a gradual “peace by pieces” welfare-oriented approach to world order, see David Mitrany, A Working Peace System, Chicago: Quadrangle Books, 1966 [originally published in 1943 as a pamphlet]. [114] Chung-in Moon, “Sustaining Inter-Korean Reconciliation: North-South Korea Cooperation,” Joint U.S.-Korea Academic Studies, Vol. 12, 2002, pp. 231–232. [115] See Samuel S. Kim, The Two Koreas and the Great Powers, New York: Cambridge University Press, 2006, Table 6.2, pp. 322- 324. [116] Charles K. Armstrong, “Inter-Korean Relations: A North Korean Perspective,” in InterKorean Relations, p. 40. [117] Joint New Year Editorial of Rodong Sinmun, Joson Immingun, Chongnyong Jonwi, “Let Us Fully Demonstrate the Dignity and Might of the DPRK Under the Great Banner of Armybased Policy,” January 1, 2003 at www.kcna.comjp/item2003/200301/ news01/01.htm. [118] For a detailed analysis, see Samuel S. Kim and Matthew S. Winters, “Inter-Korean Economic Relations,” in Inter-Korean Relations, pp. 57-80. [119] James W. Brooke, “Quietly, North Korea Opens Markets,” New York Times, November 19, 2003, pp. W1, W7. [120] Ministry of Unification, Tong’il paekso 2005 [Unification White Paper 2005], Seoul: Ministry of Unification, February 2005. [121] See Kim and Winters, “Inter-Korean Economic Relations,” pp. 72-75. [122] John Feffer, “Korea’s Slow-Motion Reunification,” Policy Forum Online 05-53A: June 28, 2005, available at www.nautilus. org/fora/security/0553Feffer.html. [123] See Andrew Mack, “Why Big Nations Lose Small Wars: The Politics of Asymmetric Conflict,” World Politics, Vol. 27, No. 2, 1975, pp. 175–200; T. V. Paul, Asymmetric Conflicts: War Initiation by Weaker Powers, New York: Cambridge University Press, 1994; Thomas Christensen, “Posing Problems Without Catching Up: China’s Rise and Challenges for U.S. Security Policy,” International Security, Vol. 25, No. 4, 2001, pp. 5–40. [124] Ivan Arreguin-Toft, “How the Weak Win Wars: A Theory of Asymmetric Conflict,” International Security, Vol. 26, No. 1, 2001, pp. 93–128.

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[125] Richard Ned Lebow, Between Peace and War: The Nature of International Crisis, Baltimore: The Johns Hopkins University Press, 1981, pp. 57–97. [126] William Habeeb argues that “issue-specific structural power is the most critical component of power in asymmetrical negotiation.” William Habeeb, Power and Tactics in International Negotiation: How Weak Nations Bargain with Strong Nations, Baltimore: Johns Hopkins University Press, 1988, pp. 21, 130. [127] Pastor, “The Great Powers in the Twentieth Century,” p. 27. [128] Ronald P. Barston, “The External Relations of Small States,” in August Schou and Arne Olav Brundtland, eds., Small States in International Relations, Stockholm: Almqvist and Wiskell, 1971, p. 46; and Habeeb, Power and Tactics in International Negotiation, pp. 130–131. [129] Peter Hayes, Pacific Powderkeg: American Nuclear Dilemmas in Korea, Lexington, MA: Lexington Books, 1991, p. xiv. [130] A 1995 RAND Corporation study concluded that there existed a “medium likelihood” of North Korea launching an attack against South Korea out of desperation. In such a case, there would be a “high likelihood” of the use of chemical weapons by the North. New York Times, January 28, 1996, p. 10. [131] Scott Snyder, “North Korea’s Challenge of Regime Survival: Internal Problems and Implications for the Future,” Pacific Affairs, Vol. 73, No. 4, Winter 2000/ 2001, p. 522. [132] President Roh’s Address at the 53rd Commencement and Commissioning Ceremony of the Korea Air Force Academy, March 8, 2005, available at english.president.go,kr/ warp/app/en_ speeches/view ?group_id=en_ar.. [133] Ashton B. Carter and William J. Perry, Preventive Defense: A New Security Strategy for America, Washington, DC: Brookings Institution Press, 1999, pp. 123–124. A footnote for this statement explains that Ashton Carter was not present for the meeting referred to here, so Perry “tells this story himself,” p. 123. [134] Rodong Sinmun, June 1, 2000, p. 6. [135] Byung Chul Koh, The Foreign Policy Systems of North and South Korea, Berkeley: University of California Press, 1984, pp. 42–43. [136] Marcus Noland, Avoiding the Apocalypse: The Future of the Two Koreas, Washington, DC: Institute for International Economics, 2000, pp. 3-4. [137] Eui-gak Hwang, The Korean Economies, Oxford: Clarendon Press, 1993, Table 5.4. [138] See Rodong Sinmun [Workers’ Daily], Pyongyang, May 27, 1991; February 4, 1992; October 10, 1993; and March 4, 1993. [139] See Marcus Noland, “North Korea’s External Economic Relations: Globalization in ‘Our Own Style’,” in Samuel S. Kim and Tai Hwan Lee, eds., North Korea and Northeast Asia, Lanham, MD: Rowman and Littlefield, 2002, pp. 165–193. [140] World Bank, World Development Report 1991: The Challenge of Development, New York: Oxford University Press, 1991, p. 12, Figure 1.1. [141] Economist Intelligence Unit (EIU) Country Report: South Korea and North Korea, 1st Quarter, 1999, p. 40. [142] North Korean News, No. 702, September 27, 1993, p. 5. [143] AFP, July 16, 1999. [144] See “21 seki nun koch’anghan chonpyon ui seki, ch’angcho ui seki ita” (“The TwentyFirst Century Is a Century of Great Change and Great Creation”), Rodong Sinmun [Worker’s Daily], January 4, 2001, p. 2; “Motun muncherul saeroun kwanchom kwa

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noppieso poko pulo nakacha” (“Let Us See and Solve All Problems from a New Viewpoint and a New Height”), editorial, Rodong Sinmun [Worker’s Daily], January 9, 2001, p. 1. [145] James Cotton, “The Rajin-Sonbong Free Trade Zone Experiment: North Korea in Pursuit of New International Linkage,” in Samuel S. Kim, ed., North Korean Foreign Relations in the Post-Cold War Era, New York: Oxford University Press, 1998, pp. 212–234. [146] See Marcus Noland, “Economic Strategies for Reunification,” in Nicholas Eberstadt and Richard J. Ellings, eds., Korea’s Future and the Great Powers, Seattle: The National Bureau of Asian Research and University of Washington Press, 2001, pp. 191–228. [147] See Marcus Noland, “Famine and Reform in North Korea,” Institute for International Economics Working Paper, WP 03–5, July 2003. [148] Meredith Jung-en Woo, “North Korea in 2005: Maximizing Profit to Save Socialism,” Asian Survey, Vol. 46, No. 1, January/ February 2006, pp. 51-52. [149] Scott Snyder, “China-Korea Relations: Kim Jong-il Pays Tribute to Beijing—In His Own Way,” Comparative Connections First Quarter, 2006, pp. 110-111. [150] It is worth noting in this connection that the September 19 Joint Statement embodied many key elements that North Korea had first proposed but China emphasized in the Chairman’s Statements of the second and third rounds of talks, including most notably Principle 5. It states that “the six parties agreed to take coordinated steps to implement the aforementioned consensus in a phased manner in line with the principle of ‘commitment for commitment, action for action’.” [151] Georgy Bulychev, “A Long-Term Strategy for North Korea,” Japan Focus, February 15, 2005, available at japanfocus.org/ article.asp ?id=222. [152] In a similar vein, Robert Litwak argues that it is regime intention more than regime type that is the critical indicator of a country’s decision to go nuclear. See Robert Litwak, “Non- Proliferation and the Dilemmas of Regime Change,” Survival, Vol. 45, No. 4, Winter 2003, p. 11. This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. As such, it is in the public domain, and under the provisions of Title 17, United States Code, Section 105, it may not be copyrighted. The views expressed in this chapter are those of the author and do not necessarily reflect the official policy or position of the Department of the Army, the Department of Defense, or the U.S. Government. Research for this monograph was completed in October 2006. The Strategic Studies Institute publishes a monthly e-mail newsletter to update the national security community on the research of our analysts, recent and forthcoming publications, and upcoming conferences sponsored by the Institute. Each newsletter also provides a strategic commentary by one of our research analysts. If you are interested in receiving this newsletter, please subscribe on our homepage at www. StrategicStudies Institute.army. mil/newsletter/.

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Chapter 2

THE NORTH KOREAN ECONOMY: LEVERAGE AND POLICY ANALYSIS∗ Dick K. Nanto and Emma Chanlett-Avery

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ABSTRACT North Korea’s dire economic straits provides one of the few levers to move the Democratic Peoples Republic of Korea (DPRK) or North Korea to cooperate in attempts by the United States, China, South Korea, Japan, and Russia to halt and dismantle its nuclear program. These five countries plus North Korea comprise the “six parties” who are engaged in talks, currently restarted, to resolve issues raised by the DPRK’s development of a nuclear weapon. This chapter provides an overview of the North Korean economy, its external economic relations, reforms, and U.S. policy options. In June 2008, the Bush Administration announced that it was lifting restrictions under the Trading with the Enemy Act and was starting the process to remove the DPRK from the list of State Sponsors of Terrorism. Other sanctions, including U.N. sanctions imposed following North Korea’s nuclear test, still remain in place. The economy of North Korea is of interest to Congress because it provides the financial and industrial resources for the Kim Jong-il regime to develop its military and to remain in power, constitutes an important “push factor” for potential refugees seeking to flee the country, creates pressures for the country to trade in arms or engage in illicit economic activity, is a rationale for humanitarian assistance, and creates instability that affects South Korea and China in particular. The dismal economic conditions also foster forces of discontent that potentially could turn against the Kim regime — especially if knowledge of the luxurious lifestyle of communist party leaders becomes better known or as poor economic performance hurts even the elite. Economic conditions in North Korea have been improving since the disastrous conditions in the mid-1990s but still are dismal for those out of the center of power. Crop failures and flooding have reportedly increased the potential for mass starvation in 2008, although progress in the Six Party Talks have open the way for deliveries of humanitarian assistance from the United States and South Korea. The DPRK has embarked on a program of limited economic reforms that include allowing open markets, allowing prices to better reflect market values, reducing dependence on rationing of essential ∗ Excerpted from CRS Report RL32493, dated August 26, 2008. North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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Dick K. Nanto and Emma Chanlett-Avery commodities, trimming centralized control over factory operations, and opening areas for international investment. North Korea has extensive trading relationships with China and South Korea and more limited trade with Russia. Because of economic sanctions U.S. and Japanese trade with North Korea in 2006 and 2007 was virtually nil. The DPRK has been running an estimated $1.5 billion deficit per year in its international trade accounts that it funds primarily through receipts of foreign assistance and foreign investment as well as through various questionable activities.

MAJOR POINTS AND RECENT DEVELOPMENTS • •

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The economy of the DPRK (North Korea) is one of the few policy levers that countries can use to induce Pyongyang to abandon its nuclear program. The economy of the DPRK is in dire straits with a considerable share of its population on the edge of starvation and in need of outside food aid. In 2008, Pyongyang is placing more emphasis on feeding its people. This likely is one reason that North Korea has been more cooperative in disclosing and ending its nuclear weapons program. China and South Korean investments and trade with the DPRK are helping the country to secure needed imports of energy, food, and machinery for factories. North Korea’s trade deficit is being financed primarily through foreign aid, investments, and remittances from overseas workers, as well as through various illicit activities. Other than recent financial sanctions, economic sanctions appear to have had little effect on the Pyongyang regime because China, Russia, South Korea, and other nations have traded and provided assistance to the DPRK, and the Kim Jong-il regime seems willing to allow starvation rather than open the country to outsiders. A fall of the Kim Jong-il regime seems unlikely at this time, although pressures apparently are building in some quarters in North Korea to look beyond the aging leader Kim. Economic reforms (“adjustments”) in the DPRK are gradually being implemented, but the pace is slow and reversals of reform measures are frequent. A February 2007 Six-Party Agreement calls for providing fuel and eventual normalizing of relations with the DPRK in response to specific actions by Pyongyang in regard to its nuclear program. [1] H.R. 2764 (P.L. 110-161) appropriated $53 million for energy assistance for North Korea. In May 2008, the Bush Administration announced it would resume food assistance to North Korea by providing 500,000 metric tons. [2] Options for Congress include increasing its role in the Six-Party Talks through oversight, hearings, legislation, and policy discussions with the Executive Branch; continuing with the status quo (primarily a State Department effort) including an emphasis on human rights, non-proliferation, and actions to counter illicit activities; or to take a more rigid stance toward Pyongyang until it fulfills its commitments under the 2007 Six-Party Agreement.

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RECENT EVENTS •

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On July 11, 2008, Park Wang-ja, a 53-year-old housewife, was shot dead by a North Korean soldier while taking a pre-dawn stroll near a South Korea-managed resort on Mount Kumkang in North Korea. South Korea halted further tourist visits to the mountain resort (worth about $10 million per year to North Korea). (There is some speculation that this could be the DPRK military’s attempt to derail denuclearization under the Six-Party process.) On July 12, 2008, North Korea agreed to disable its nuclear facilities by the end of October and, in return, the other parties pledged to provide promised energy aid to the North by that time. In June 2008, the DPRK disclosed additional detail on its nuclear program. The Bush Administration announced that it was lifting restrictions under the Trading with the Enemy Act and was starting the process to remove (August 11, 2008, at the earliest) the DPRK from the list of State Sponsors of Terrorism. Other sanctions, including U.N. sanctions imposed following North Korea’s nuclear test, remain in place.

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INTRODUCTION On June 26, 2008, President Bush announced the lifting of the application of the Trading with the Enemy Act (TWEA) with respect to the Democratic People’s Republic of Korea (DPRK, or North Korea), and notified Congress of his intent to rescind North Korea’s designation as a State Sponsor of Terrorism. [3] According to the State Department, these actions were taken following the DPRK’s submission of a declaration of its nuclear programs as agreed to under the Six Party Talks. The Secretary of State is able to (but has not yet) rescind North Korea’s designation as a State Sponsor of terrorism (as of August 11, 2008, following the 45 day period in which Congress could have passed a joint resolution blocking the proposed rescission). The United States reportedly is waiting for more complete verification of the DPRK nuclear program. [4] Recent progress being made under the Six Party Talks on the denuclearization of the Korean Peninsula also enabled the United States to resume shipments of humanitarian aid to North Korea. A shipload of food and another of heavy fuel oil arrived in North Korea shortly after the announcement by President Bush of the above actions. In 2008, the confluence of several forces is complicating the economic situation faced by Pyongyang. The first is the global food shortage and concomitant high prices combined with a poor crop outlook for farms and halting recovery in industries within North Korea. The second is the hardening of attitudes by the new South Korean President Lee Myung Bak who has declared an end to unrequited South Korean economic assistance to the North and reciprocal criticism of the South by Pyongyang. These negative factors are offset somewhat by progress being made in North Korea’s relations with Japan over the problem of abductees (Japanese citizens kidnapped by the DPRK) that may lead to a normalization of relations and a large payment by Japan of reparations to the DPRK for Japan’s occupation of the Korean peninsula and also by investments in North Korean industrial production by China in the northern region and by South Korea primarily in the Kaesong Industrial Complex. These

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investments have created new exports for the DPRK. The progress under the Six-Party Talks and the apparent willingness on the part of both the United States and the DPRK to compromise in order to move the Six Party Agreement on denuclearization forward has opened the way for deliveries of U.S. humanitarian aid, and if sanctions are lifted, for possible Western investment in North Korea. The outlook for growth in 2008 is for an increase in real gross domestic product of about 2.1%, down slightly from the 2.4% in 2007. [5] North Korea at a Glance Land Area: 120,540 sq km, slightly smaller than Mississippi Population: 23.3 million (2007 est.) Head of State: Kim Jong-il Capital: Pyongyang Life expectancy: 72 years GDP: estimated $40-$71 billion at purchasing power parity in 2007 GDP Per Capita: $1,900 (CIA) to $3,094 (Global Insight) at PPP in 2007 GDP Composition: agriculture: 30% industry: 39%, services: 31% Exports: $1.9 billion (2007) Export Commodities: minerals, metallurgical products, manufactures (including armaments), textiles, and fishery products Imports: $3.2 billion c.i.f. (2007) Import Commodities: petroleum, coking coal, machinery and equipment; textiles, grain

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Sources: CIA, World Factbook; Global Insight. CRS calculations for trade.

The Stalinist state of North Korea (Democratic People’s Republic of Korea or DPRK) faces a dilemma as its economy stagnates, goods are unequally distributed, and much of the population undergoes severe privation. In the ongoing Six-Party Talks on the DPRK’s nuclear weapons, economic assistance has been the primary incentive for Pyongyang’s leaders to proceed with commitments relating to the closure of its nuclear weapon’s program despite resistance from domestic interests (particularly the military). North Korea’s leaders seem to perceive themselves as being in a policy dilemma. They see the United States as a hostile power and perceive themselves as a possible target of U.S. military action. They have pushed to become a nuclear power despite warnings not to do so even from China, their major ally. Yet North Korea’s nuclear weapon development has become a rallying point for national pride and what they see as a deterrent against hostile action. Yet a January 2008 joint newspaper editorial by the Communist Party, military, and youth militia stated that “at present, no other task is more urgent or more important than solving the people’s food problem and eating problem.” [6] In January 2008, Kim Jong-il reportedly stated, “The most important and urgent issue for us now is to bring about a turnabout in the building of the economy and in the lives of the people.” [7] Pyongyang currently faces the archetypical economic trade-off between “guns and butter,” but in their case the question is whether to retain the “guns” (nuclear weapons) or give them up in order to obtain “butter” (food imports). In negotiating with the DPRK, the United States has five major policy levers: international political pressure, economic assistance, economic sanctions, diplomatic isolation, and the threat of preemptive military action. This chapter examines the economic side of U.S. leverage with North Korea. The security side is addressed in other CRS reports.

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[8] Here we provide an overview of the North Korean economy, survey its economic relationships with major trading partners, and conclude with a discussion of U.S. policy options. Information on the DPRK’s economy is scanty and suspect. The closed nature of the country and the lack both of a comprehensive data-gathering structure using modern economic concepts and a systematic reporting mechanism make quantitative assessments difficult. Still, sufficient information is available to provide a sketch of the North Korean economy that has enough details to address different policy paths. U.S. interest in the moribund North Korea economy goes beyond the leverage that economic assistance provides in negotiations over Pyongyang’s nuclear weapons. The economy provides the financial and industrial resources for Pyongyang to support its military and nuclear weapons program. It constitutes an important “push factor” for refugees seeking to flee the country. It creates pressure for the country to engage in illicit trade. When the economy is performing poorly, it diverts international food aid that could be used elsewhere and creates instability that raises the risk of desperate action by Pyongyang. Dismal economic conditions may foster forces of discontent in the DPRK that potentially could turn against the ruling regime of Kim Jong-il — especially if knowledge of the luxurious lifestyle of regime leaders and the higher standard of living in South Korea spreads or if the poor economic performance hurts even Pyongyang’s elite. Despite over a decade of hardship, however, most dissatisfaction or opposition to the regime seems to be muted. This CRS chapter notes that the worst of North Korea’s economic crisis reached in the mid-1990s seems to have passed, but the economy is still struggling and heavily dependent on foreign assistance to stave off starvation among a sizable proportion of its people. In a 2008 survey, the U.N. World Food Programme (WFP) found that food availability, accessibility, and utilization have deteriorated sharply since 2007; close to three quarters of the households have reduced their food intake; and that more malnourished and ill children are being admitted to hospitals and institutions. The conclusion was that millions of people in the DPRK are experiencing hunger not seen in almost a decade. [9] Severe floods in 2007 worsened a situation that had been improving. So far, deliveries of food aid, Pyongyang’s reforms, and increasing trade with South Korea and China have enabled the country to bridge to some extent its shortfall between food production and basic human needs. U.N. trade sanctions along with U.S. financial sanctions may have had some effect, judging by the complaints coming out of Pyongyang and progress in the Six- Party Talks. U.S. trade sanctions alone, however, tend to have little impact because the United States already has virtually no trade with the DPRK. The country can turn to other nations for needed imports, and sanctions do not halt humanitarian aid shipments. The Six-Party Agreement of February 13, 2007, included an economic incentive of heavy fuel oil and humanitarian food aid, as well as the prospect of the normalization of diplomatic relations between the DPRK and the United States and Japan in exchange for North Korea’s freezing and allowing inspections of the activity at its Yongbyon nuclear reactor. The Agreement is being implemented on the basis of action-for-action.

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OVERVIEW OF THE DPRK ECONOMY The North Korean economy is one of the world’s most isolated and bleak. [10] It was completely bypassed by the Asian “economic miracles” of the past three decades that brought modern economic growth and industrialization to South Korea, Taiwan, Singapore, and Hong Kong, as well as rapid growth and trade liberalization to China, Thailand, Malaysia and other Asian nations. The “Stalinist” North Korean economy can be characterized by state ownership of means of production; centralized economic planning, command, and monitoring of political attitudes; and an emphasis on military development. The economic system is designed to be self-reliant and closed. The irony of the situation is that the longer the economy tries to remain self- sufficient, the poorer its performance and the more dependent the country becomes on the outside world just to survive. During the 1990s, major portions of the North Korean population survived primarily through transfers of food and other economic assistance from abroad. The worst of the food crisis has passed, but shortages are still there, and the country depends on staples from China, South Korea, and, when allowed, from the U.N. World Food Program to stave off mass starvation. [11] During the 1990s, the inefficiencies of North Korea’s centrally planned economy, especially its promotion of state-owned heavy industries, along with high military spending — about 15-25% of GDP — joined with drought and floods to push the economy into crisis. In addition, the collapse of the Soviet bloc meant the loss of Russian aid, export markets, and cheap oil. Trade with the former Soviet Union dropped from as much as $3.58 billion in 1999 and has recovered to only $230 million (mostly petroleum) by 2005. [12] This added to disastrous domestic economic conditions in North Korea. [13] Food has been so scarce that North Korean youth are shorter than those in other East Asian nations. [14] Since 1998, the military reportedly has had to lower its minimum height requirement in order to garner sufficient new recruits. Life expectancy has been contracting. With the help of the WFP, which had been feeding more than a quarter of North Korea’s 23 million people, chronic malnourishment among children reportedly fell from 62% in 1998 to about 37% in 2004. About one-third of mothers are considered to be both malnourished and anemic. [15] The Food and Agriculture Organization of the United Nations estimated that 7.6 million North Koreans were undernourished in the 2002- 2004 period. [16] North Korea refers to this period of hardship as the “arduous march,” an apparent comparison to the “long march” in Chinese revolutionary history. In January 2006, Pyongyang ordered the WFP to stop food deliveries to the DPRK, but limited food assistance (about 75,000 tons annually) was resumed after an agreement in May 2006. [17] Over the winter of 2007-2008, the abnormally dry and cold weather reportedly has seriously affected the growth of autumn wheat and barley. When combined with severe flooding during the summer of 2007, the WFP predicted the DPRK will be short about 1.4 million tons of food in 2008. [18] An extensive analysis of the famine in the 1990s concludes that the “ultimate and deepest roots of North Korea’s food problems must be found in the very nature of the North Korean economic and political system.” [19] Since 2002, Pyongyang has allowed some reforms that may ease the economic pressures over the long term. In a sense, these reforms legitimized what was already occurring following the collapse of the centrally planned economy. [20] The Kim regime refuses to call the economic measures “reforms,” but as will be discussed

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later in this chapter, that in essence is what they are. North Korea prefers to characterize the reforms as “utilitarian socialism.” This includes the introduction domestically of market economy elements (called the July 1, 2001 measures) and in the international arena, the pursuit of normalization of relations with countries that have traditionally been hostile toward their country. The DPRK’s gross national product in 2007 in purchasing power parity prices (PPP) — prices adjusted to international levels — has been estimated at $40 billion (CIA estimate). This amounts to national income of about $1,800 to $2,964 per capita in PPP values or roughly in the range of that of Zimbabwe, Uzbekistan, Bangladesh, or the Sudan. This is considerably lower than that of China ($6,572), [21] Indonesia ($3,842), or Japan ($30,821). It is also dramatically lower than South Korea’s $21,868 in PPP values or $16,200 at market prices. [22] According to the Bank of Korea, in market prices, North Korea’s GDP in 2006 was an estimated $25.6 billion compared with $888 billion for South Korea. Global Insight, an econometric consulting firm, estimated North Korea’s GDP in 2006 at $22.9 billion ($23.9 billion in 2007). [23] A remarkable fact is that in the post-Korean War and into the mid1970s, living standards were higher in North Korea than in either South Korea or China. Now, North Korea is far behind its rapidly growing neighbors. As shown in Figure 1, growth in estimated real gross domestic product (GDP) in the DPRK was dropped into the negative for most of the 1990s before beginning to recover in 1999. In 2004 to 2006, growth has been continuing at about 2%, up slightly from earlier years. In 2006, the economy shrank by 1.1% and continued to decline in 2007 by an estimated 2.3%. In essence, the economy appears to have recovered moderately after the 1990s but has contracted again over 2006-2007.

Source: Data from Bank of Korea Figure 1. Estimated Real Annual Growth in North Korea’s GDP 1986-2007. North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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It should be noted that various scholars and government officials produce a variety of estimates of North Korean growth rates and GDP. Some estimates show gradual recovery, but others argue that real per capita GDP has been stagnant or even declining over the past decade. One problem is that estimates of inflation are difficult to obtain and are inherently unreliable. The reason is that households in different sectors of the economy may pay different prices for the same commodities — particularly staples that have been distributed through official channels to some but must be purchased in markets by others. Rice, for example, may be sold in an official market for one price, sold in an irregular market for another, or distributed as a ration to certain households basically for free. Another problem is that officials who report data often are under pressure to meet certain targets. Unlike in the West where data may be “sugar coated” to make them more palatable, in the DPRK, the underlying statistics often are “rubberized.” They may be stretched or compressed according to official expectations. Another problem with North Korean data is that there is a huge difference between the official exchange rate and the free market rate. This problem is avoided in PPP estimates that compare purchasing power and adjust for exchange rate differences. In estimates of GDP expressed in dollars, however, the exchange rate is used to convert North Korean won to U.S. dollars. According to Global Insight, the official exchange rate in North Korea has been 2 per dollar while the free market rate has ranged between 200 to3,000 won per dollar. [24] What can be said for certain is that a sizable part of the DPRK population lives on the edge of existence. In few countries today does a small decline in GDP or summer flooding cause massive starvation and growth stunting as it does in the DPRK. Also, despite the threat of imprisonment for crossing the border into China and being repatriated to North Korea, a large number of refugees still attempt to flee the economic and political conditions in the country. In this land of scarcity, consumer necessities have been rationed and used to reward party loyalists. Under Pyongyang’s economic reforms, this system appears to be phasing out, but in the fall of 2005, North Korea backtracked on some of its economic reforms by forbidding private sales of grains and reinstituting a centralized food rationing system. Pyongyang also reportedly closed its food markets but then opened consolidated markets that carried food and other items. The combination of a weak economy unable to provide basic food and necessities and a ruling regime intent on maintaining its power has created economic divisions within society. North Korea reportedly officially classifies its citizens into three ranks and fifty-one categories based on their ideological orientation. However, in actuality, the economy has created five classes of people. The official categories are used to allocate rations for daily necessities, jobs, and housing. [25] The de facto categories have resulted from the intrusion of market forces and trading on the official class divisions. The top class consists of the elite who claim the first rewards from society. They are the party cadres who are leaders in the military and bureaucracy and who enjoy privileges far above the reach of the average household. While starvation haunts the provinces, many of the privileged class live in Pyongyang (where provincial North Koreans cannot enter without special permission); some drive foreign cars, acquire imported home appliances, reside in apartments on a lower floor (so they do not have to climb too many stairs when the electricity is out), and buy imported food, medicines, and toiletries at special hard currency stores. [26] The elite have a strong vested interest in maintaining the current economic system, despite its

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problems. Their incomes originate from the treasury, from foreign investors (mostly South Korean), remittances from ethnic Koreans in Japan (although these have been curtailed), and the country’s shadowy trade in everything from missile technology to fake banknotes and narcotics. [27] After the elites surrounding Kim Jong-il, the second group comprises business traders with access to foreign capital and international transactions; the third consists of “organized thugs” who make their money through public trading and markets. The fourth class is composed of urbanites and others who scrape by on government rations, while the fifth class is farmers who support their way of life through farming private plots and selling goods in markets. [28] Despite hushed grumbling about economic deprivation, forced food deliveries to the central government, a rationing system with insufficient stocks to deliver, and new prohibitions on markets that are difficult to understand and rationalize, dissent in North Korea remains stifled. Support for the ruling regime appears strong — even among the lower classes of people — although this support is often enforced by severe squashing of even the slightest hint of dissent. Even suspicious comments in casual conversations may be reported to the authorities. The country is far from developing a middle class with independent economic means, personal sources of information, and a thirst for more democratic institutions. In 2007, South Korea’s new President Lee Myung-bak stated in his plan, “Vision 3000: Denuclearization and Openness,” that if North Korea denuclearizes and opens, his administration will help to make North Korea’s national income $3,000 per person within ten years. The plan, however, does not provide an alternative if North Korea does not denuclearize. [29]

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ECONOMIC PHILOSOPHY The Pyongyang regime has pursued a policy of self-sufficiency and isolation from the world economy that they call juche or self-reliance. Juche goes beyond economics as it has been used since the 1950s to perpetuate power by the central government and to build an aura of the supernatural around their supreme leaders Kim — both father and son. [30] Although the regime does not emphasize the connection, the current system of dynastic succession with a paramount father figure also harkens back to Confucianism and the powerful dynastic tradition that united the Korean peninsula for hundreds of years. The economic practice of juche has minimized international trade relations, discouraged foreign direct investment, and fostered what it considers to be core industries — mostly heavy manufacturing. While promoting such heavy industry, for most of the post-Korean War period, Pyongyang has emphasized the parallel development of military strength. Current head of state, Kim Jong-il (often referred to as “Dear Leader”), has given highest priority to the military. This places the army ahead of the working class for the first time in the history of North Korea’s so-called revolutionary movement. [31] Under Kim Il-sung (Kim Jong-il’s father), the juche ideology placed equal emphasis on political independence, selfdefense, and economic self-support capabilities. Kim Jong-il, however, insists that North Korea can be a “country strong in ideology and economy” only when its military is strong. [32] The country, therefore, has been developing its industries within the context of a

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military-industrial complex with strong links between heavy industry and munitions production. Some of North Korea’s munitions industries (manufacturing dual use products) are virtually indistinguishable from those supplying civilians. [33] In 1998 at the 10th Supreme People’s Assembly, the military’s National Defense Commission arguably eclipsed the Politburo as the supreme national decision making body in North Korea. In the years since, the term “military-first politics” has been used to signify the privileged status the Korean People’s Army holds and to stress the ascendant position of the military relative to the power of the Korean Workers’ Party, the traditional center of the DPRK’s decision making. [34] Of course, the ultimate decision maker in Pyongyang is the Dear Leader, Kim Jong-il. In 2006, Pyongyang’s defense budget was an estimated $2.3 billion to maintain its 1.1 million member military. [35] South Korea estimated the North’s military expenditures at $5 billion in 2003. In 2005, North Korea stated that the defense budget was 15.9% of its total annual budget, [36] but others had put the figure at 27.2% in 2003. Even a defense budget of $2.3 billion, however, implies an expenditure of $2,090 per member of the military, a woefully small amount. This implies that the tug of war between “guns and butter” within the North Korean regime must be quite intense given the scarcity of resources throughout the country even though the military does operate businesses that bring in additional revenues. The heavy weight of the military in Pyongyang’s decision making may help explain what to outsiders seem to be inexplicable actions by the North Korean government. For example, almost immediately after negotiators had issued the September 19, 2005, Six-party Statement in which North Korea ostensibly committed itself to abandoning all nuclear weapons and existing nuclear programs, Pyongyang began backtracking and within two months announced a boycott of future Six-Party Talks. [37] It also may help explain North Korea’s carrying out its first nuclear test on October 9, 2006, despite being warned not to do so by the United States, China, and other nations. Recent progress in the six-party talks under which North Korea shut down its Yongbyon nuclear reactor as required in phase I of the February 13, 2007 agreement arguably represents a defeat for the military, but the slow progress in phase II to date could indicate strong resistance by military interests to cutting more deeply into North Korea’s nuclear program. [38] When juche is combined with central planning, a command economy, and government ownership of the means of production, economic decisions that in a market economy would be made by private business and farmers have to go through a few elite in Pyongyang. These decisionmakers may or may not understand advances in agronomy or manufacturing and tend to be motivated by non-economic factors, such as maintaining political power or avoiding blame for initiatives gone awry. Farming methods based partly on crop rotation or new varieties of rice, for example, may be viewed as too risky. [39] Foreign investment also is hindered partly because the regime abhors being “exploited” by capitalists who seek to make profits on their business ventures in North Korea and partly because of their deep-seated mistrust of Westerners, Japanese, and South Koreans.

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INDUSTRIAL SECTORS

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North Korea’s industrial sectors are shifting rapidly. At the end of World War II, the DPRK represented the industrialized part of the Korean peninsula. Under Japanese colonialism, heavy industry, water power, and manufacturing were concentrated in the North, while agriculture flourished in the less mountainous South. Even in 1990, 49% of the North Korean economy was in mining, manufacturing, and construction, while 23% was in services (including government and utilities) and 27% in agriculture. In recent years, however, the DPRK’s nonmilitary industries have almost collapsed. By 1997, mining, manufacturing, and construction had dropped from 49% to 32% of the economy but in 2003 had risen somewhat to 36%. In 2003, services had risen to 37% of the economy, while agriculture has remained fairly constant at 27%. In 2007, mining, manufacturing, and construction were making a slow recovery to 40% of the economy. Services had gained slightly to 39%, and agriculture had declined to 21% of GDP. (See Figure 2.) Some of the most advanced industries in North Korea are associated with its military, and in 2006, $73.7 million worth of goods was produced in the Kaesong Industrial Complex by South Korean firms using North Korean labor.[40] The drop in the share of manufacturing in GDP has come about largely because of the rapid decline in production from factories, not because of large absolute increases in services or agricultural production. One report indicated that in 2003 factories were running at about 30% of their capacity. The economy lacks food for workers, raw materials, energy, and foreign currency to buy new equipment and imported inputs into the manufacturing process. [41] Much industrial capital stock is nearly beyond repair as a result of years of underinvestment and shortages of spare parts. Recently, the government has emphasized earning hard currency, developing information technology, addressing power shortages, and attracting foreign aid, but it appears unwilling to do so in any way that jeopardizes its control.

Source: The Bank of Korea. Figure 2. North Korea’s Industrial Structure. North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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North Korea’s mining sector is recovering somewhat. In 2007, 57% of China’s imports from North Korea were in mineral fuels ($170 million, mostly coal) and ores ($164 million, mostly iron, zinc, precious metal, lead, and molybdenum). [42] North Korea is rich in minerals and ores.[43] The regime looks askance, however, at exporting ores or commodities that were typical of “economic imperialism” during the colonial era when the foreign companies “exploited” the resources of less developed economies. The DPRK leadership, in their joint editorial at the beginning of 2008, however, emphasized the need for rebuilding the national economy, particularly mining and the metal, chemical, and light industries. They noted the construction of a large-scale hydroelectric power plant completed in 2007 and set out the goal of constructing an economically powerful state by 2012. [44] The agricultural sector also is in dire straits. The economy depends heavily on collective farms that have been devastated by drought or floods, lack of fertilizers and other inputs, antiquated farming methods, and a lack of incentives for private production. A report in 2003 from North Korea indicated that the situation along the border with China had deteriorated to the point that rates of starvation, disease, and even suicides were reaching a crisis point. [45] In recent years, there has been a new emphasis on fishing — using both traditional methods and new aquaculture technology. According to the U.N. Food and Agriculture Association, in 2007, North Korea’s harvesting of winter crops and potatoes (accounting for about 10% of total production) had risen by 18% to 523,000 tons due primarily to increased potato production. [46] However, severe flooding had damaged grain crops in the southern “cereal bowl” provinces. This resulted a 7% decline to some 3.8 million tons in overall 2007 food crop production. [47]

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ECONOMIC REFORMS AND FREE TRADE ZONES As with other isolationist economies in the contemporary world of globalization and interlinked societies, North Korea has been plagued with the negative effects of its attempts at self sufficiency: technological obsolescence, uncompetitive exports, economic privation, and lack of foreign exchange. These difficulties, together with advice from China and Russia, have compelled the Pyongyang regime to introduce some economic reforms. To a large extent, they are adopting the sequence of Chinese reforms with economic reforms preceding political reforms while eschewing the Russian model of political reform preceding and concurrent with economic reforms. [48] The DPRK also has been examining the Vietnamese model of development and do moi (reform). Kim Jong-il reportedly prefers the Vietnamese style of gradual economic reform rather than the abrupt Chinese style. [49] The reforms began in July 2002 when Pyongyang announced a series of measures that some surmise may mark the beginning of the end of the Stalinist controls over the economy and the onset of more use of the market mechanism to make economic decisions, particularly production and consumer purchases. Although the government has dubbed the reforms an “economic adjustment policy,” [50] the actions appear to be a desperate attempt to revive the moribund economy. The reforms also dovetail with North Korea’s “military first” policy. As Kim Jong-il has given first priority to the military, the rest of the population has suffered. [51] This, in turn, has raised pressures on Pyongyang to reform its economic system.

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The adjustments (reforms) featured an end to the rationing system for daily commodities (except for food), a huge increase in prices of essentials and in wages, a major devaluation of the currency (official exchange rate), abolishment of the foreign exchange coupon system, increased autonomy of enterprises, authorization of the establishment of markets and other trading centers, and a limited opening of the economy to foreign investment. Prices still remain under centralized control but at levels closer to those existing in peasant (free) markets. North Korea has not abandoned the socialist planned economy, but it has been compelled to “adjust” certain aspects of it. Under the reforms, overall prices were increased by 10 to 20 times. Government prices for many essential items, however, rose by much more. The price for rice rose by 550 times, for corn 471 times, for diesel oil 38 times, and for electricity 60 times. Wages also were raised but not enough to keep pace with skyrocketing consumer prices. Wages rose by 18 times for laborers and 20 times for managers. [52] Even though not all workers received the promised wage increases, the price and wage reforms caused households to face rampant consumer inflation, and many people ended up worse off financially than before the reforms. In North Korean factories, reforms include greater control over prices, procurement, wages, and some incentives to increase profits in order to distribute them based on individual performance. The regime also is looking to implement reforms in agriculture similar to those implemented in China (along the lines of the rural household contract system). In the mid1990s, North Korea’s agricultural work squads had already been reduced in size. Now they are moving toward family oriented operations with farmers allowed to retain more of any production exceeding official targets. Although small farmers’ markets have long existed in North Korea, Pyongyang did not legalize such farmers’ markets until June 2003. This followed the formal recognition of commercial transactions between individuals and the 1998 revision to the constitution that allowed individuals to keep profits earned through legitimate economic activities.[53] Now free markets and shopping centers that use currency, not ration coupons, are spreading. The Pyongyang Central Market, for example, became so crowded that a new, three-story supermarket had to be built. Pyongyang’s Tongil market with its lines of covered stalls stocked with items such as fruit, watches, foreign liquor, clothes, Chinese-made television sets, and beer from Singapore also is bustling with sellers and consumers reminiscent of those in other Asian countries. [54] Visitors to Pyongyang in late 2006 indicated that the market was thriving with all types of products and shoppers driving European cars. [55] The North Korean population is gradually becoming re-accustomed to operating in open markets. This has raised fears by the DPRK regime of encroachment by capitalism into their socialist economic system. On August 26, 2007, Kim Jong-il announced that “markets have become anti-socialist, Western-style markets.” This has led to a steady stream of government edicts restricting market activity across the country. At first, authorities prohibited women under the age of 40 from selling goods in Pyongyang markets. Then on December 1 the authorities banned women under the age of 49 from running businesses in Pyongyang. (Since males are officially required to be at their assigned workplaces, women generally run the businesses.) Certain products, such as videos of South Korean dramas, movies, and other socalled non-socialist elements are also banned from central markets. [56] Enforcement of the new regulations at first was spotty, but in late 2007, it appears to have become more strict. According to news reports, policing is also being conducted by central government security agencies, organizations that normally deal with issues such as

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intelligence gathering and sedition. [57] The extent of the Kim regime’s attempts to control the development of a market economy can be illustrated by the increased difficulty of acquiring travel permits for persons suspected of being wholesale merchants intending to carry goods from one place to another. This crackdown on travel also is affecting normal tourist and family trips. Corruption, however, allows some businesses to continue, as certain officials reportedly are receptive to bribes. Secret peddling on streets and other banned activity also continues out of sight of the authorities (particularly by young and nimble traders). [58]

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Foreign Investment North Korean economic reforms also include opening certain areas to foreign investment. Under the Joint-Operation Act of 1984 to 1994, there were 148 cases of foreign investment worth about $200 million into North Korea. Of these 148 cases, 131 were from pro-North Korean residents of Japan. In 1991, Pyongyang opened the Rajin-Sonbong free trade zone and established the Foreigner Investment Act. To 1997, some 80 investments totaled $1.4 million. Other areas receiving foreign investment include Nampo, Pyongyang, Kosung-gun, Shimpo, Wonsan, and Mt. Kumkang. Foreign companies in North Korea include 50 South Korean companies (e.g., Hyundai, daewoo, Taechang, LG, Haeju, and G-Hanshin), DHL, ING Bearing Bank; Japan’s Hohwa, Saga, and New Future Ltd. companies; Taiwan’s JIAGE Ltd., and the China Shimyang National Machinery Facility Sales Agency Corporation. [59] The U.N. Development Programme is promoting the Tumen River Valley Development Project which aims to develop business based on transit transportation, tourism, and commissioned processing trade. [60] Mt. Kumkang has been developed with the cooperation of South Korea’s Hyundai corporation into a tourist destination for South Koreans and a venue for reunions of families separated by the DMZ.

Source: United Nations Conference on Trade and Development. Foreign Direct Investment database. Figure 3. Foreign Direct Investment Flows and Stocks in the DPRK, 1987-2006. North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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According to data compiled by the United Nations Conference on Trade and Development (UNCTAD) since 1987, the DPRK had a cumulative $1.56 billion in foreign direct investment (FDI) as of the end of 2006. Annual FDI flows have been sporadic, even negative in some years, but since 2003, they have been rising. (See Figure 3.) In 2007, both South Korea and China increased their investments in North Korea. The industrial sector is receiving some help from Chinese investments and from South Korean firms operating in the Kaesong Industrial Complex. It also is able to attract a limited amount of foreign investment from other nations. For example, in January 2008, Orascom Telecom, the fourth-largest Arab phone operator based in Cairo, Egypt, [61] announced that its subsidiary in North Korea (CHEO Technology — 25% owned by the state-owned Korea Post and Telecommunications) had received a license to be the first provider of mobile telephone services throughout the country. The company is to invest up to $400 million in network infrastructure over the first thee years and to provide service to Pyongyang and other major cities within one year. [62] North Korea’s mining sector is recovering somewhat. In 2007, 57% of China’s imports from North Korea were in mineral fuels ($170 million, mostly coal) and ores ($164 million, mostly iron, zinc, precious metal, lead, and molybdenum). [63] North Korea is rich in minerals and ores. [64] The regime looks askance, however, at exporting ores or commodities that were typical of “economic imperialism” during the colonial era when the foreign companies “exploited” the resources of less developed economies. Since 2000, the DPRK has attempted to emulate China’s highly successful free trade zones (FTZ) by establishing the Sinuiju Special Administrative Region (SAR) on the northwestern border with China and Kaesong (Gaesong) Industrial Complex along the border with South Korea. Since being established in 2002, the development of the Sinuiju SAR has been stymied partly because of the arrest by Beijing of Chinese businessman Yang Bin, a Chinese-Dutch entrepreneur who was named as its governor, on charges of illegal land use, bribery and fraud. After Kim Jong-il’ s visit to China in 2006, Sinuiju appears to be receiving new attention. Foreign currency management groups reportedly are moving in, and ordinary citizens are being replaced by residents of Pyongyang and other areas. [65]

Kaesong Industrial Complex [66] Currently, the most significant effort at creating free-trade zones is the Kaesong Industrial Complex (KIC). This joint effort between the North and South is developing rapidly, despite tensions over North Korea’s testing of ballistic missiles and a nuclear weapon. The KIC is managed by South Korea’s Hyundai Asan and Korea Land Corporation. Located just over the border 43 miles north of Seoul on the route to Pyongyang, this 810-acre complex aims to attract South Korean companies, particularly small and medium sized enterprises, seeking lower labor and other costs for their manufactured products and who may not be able to establish subsidiaries in China or other countries. By September 30, 2007, 52 companies had begun operations in Kaesong. They were employing 15,158 North Korean personnel (another 2,025 North Koreans were working in construction in the complex and 599 in administrative offices). [67] To be completed in three stages, the first stage (20022007) had 3.3 million square meters of a total of 66 million square meters being constructed or under construction in 2006. Hyundai Asan and the Korea Land Corporation plan to

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eventually attract 300 businesses in the first stage, 700 in the second, and 1,000 businesses in the third stage with an estimated total of 300,000 workers. Of the $374 million initial cost for the first stage, $223 million was to be provided by the South Korean government. In December 2006, the Korea Electric Power Corporation connected North and South Korea by a 100,000 kilowatt power-transmission line for use by the companies in the KIC. The initial 15 companies operating in Kaesong and their products included Living Art (kitchenware), Shinwon (apparel), SJ Tech (semiconductor component containers), Samduk Trading (footwear), Hosan Ace (fan coils), Magic Micro (lamp assemblies for LCD monitors), Daewha Fuel Pump (automobile parts), Taesung Industrial (cosmetics containers), Bucheon Industrial (wire harness), Munchang Co. (apparel), Romanson (watches, jewelry), JY Solutec (automobile components and molds), TS Precision Machinery (semiconductor mold components), JCCOM (communication components), and Yongin Electronics (transformers, coils). [68] In 2006, the KIC produced some $7.5 million worth of goods each month. [69] In September 2007, monthly production had reached $17.1 million. Over the January 2005 to September 2007 period, production in Kaesong totaled $213.8 million with $92.3 million in textiles, $26.6 million in chemical products, $54.0 million in metals and machinery, and $41.0 million in electric and electronic products. [70] Kaesong developed partly from South Korea’s sunshine policy of economic engagement with the North. The KIC serves both geopolitical and economic purposes. Geopolitically, it provides a channel for rapproachment between North and South Korea, a bridge for communication, a method of defusing tensions, and a way to expose North Koreans to outside ideas and ways of doing business. Economically, the KIC provides small- and medium-sized South Korean firms with a low-cost supply of labor for manufacturing products, provides jobs for North Korean workers, and provides needed hard currency for Pyongyang. Even after the North Korean nuclear test in 2006, KIC operations continued. A controversial issue has arisen with respect to the KIC and the proposed South KoreaU.S. Free-trade Agreement. South Korea had requested that products exported from the complex be considered to have originated in South Korea in order to qualify for duty free status under the proposed FTA. Such a provision had been included in other South Korean FTAs. The language of the proposed Korea-United States FTA (signed but not yet approved by Congress) does not provide for duty-free entry into the United States for products made in Kaesong. Annex 22-B to the proposed FTA, however, provides for a Committee on Outward Processing Zones (OPZ) to be formed and in the future to designate zones, such as the KIC, to receive preferential treatment under the FTA. Such a designation apparently would require legislative approval by both countries. Other issues raised by the KIC have been the conditions for North Korean workers, whether they are being exploited, [71] as well as the hard currency funds the industrial complex provides for the ruling regime in Pyongyang. South Korean officials, as well as other analysts, point out that average wages and working conditions at Kaesong are far better than those in the rest of North Korea. The monthly minimum wage is $50 ($57.50 including the cost of social insurance). General workers receive $50, team leaders receive $52-$55, and heads of companies receive $75 per month. After the government, takes its share of the wages, the workers receive about $37 per month. Workers also receive overtime pay. [72]

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The North Korean government derives hard currency from several sources in the KIC project, including leasing fees and its taxes and fees deducted from the wages of North Korean workers. The wages are first paid in hard currency to a North Korean government agency that takes a certain percentage before paying the North Korean workers in won. If the government collects about $20 per month (in social insurance taxes plus its cut of wages) for each of the 10,000 workers now at Kaesong, its monthly take from wages would amount to approximately $200,000 per month or $2,440,000 over a year. One estimate is that Pyongyang has earned a total of about $20 million from the Kaesong Industrial Complex. [73]

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Investment From China China has a direct interest in economic reform and recovery in the DPRK. Chinese business interests with support from Beijing are beginning to invest widely in the North Korean economy. Unlike, South Korean investors, Chinese are allowed to invest in enterprises fully integrated into the DPRK economy. They also have provided machinery and equipment to existing North Korean factories. Chinese investment in mineral extraction in the DPRK seems to represent an easing the DPRK constitutional ban against “cultural infiltration (Article 41). This has been interpreted to include international economic integration and globalization. [74] However, Pyongyang seems to be treating investment from China as being “not contaminated” relative to those from South Korea or other nations. South Korean investments are carefully walled off from the average North Korean citizen, whereas China has been able to invest in production facilities in various locations. According to Chinese sources, from January to October 2006, the Chinese side approved 19 new investments in the DPRK, with negotiated investment of $66.67 million. Cumulative investment up to the end of October 2006 included Chinese government approval of 49 investments in the DPRK with negotiated investment of $135 million. [75] These figures seem understated. Since 2006, Chinese investments have increased significantly. The projects of the investment covered such fields as food products, medicine, light industry, electronics, chemical industry and minerals. Major Chinese investments involving mining and minerals in the DPRK include the following: [76] •

•

China Tonghua Iron and Steel Group has invested 7 billion yuan (approximately $875 million) in developing the DPRK’s Musan Iron Mine. Two billion yuan (approximately $250 million) is to be used for the preliminary construction of communication facilities and cables from Tonghua, China, to the DPRK’s Musan area; 5 billion yuan (approximately $625 million) is to be used mainly on technology and equipment in developing the mine as well as in Musan’ s overall planning.) This mine is the largest open-cut iron mine in Asia with verified iron-rich ore reserves reaching seven billion tons. On October 20, 2007, China’s Tangshan Iron and Steel Company (China’s third largest steel company) and the DPRK’s Department of Foreign Economic

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•

• •

•

•

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•

Cooperation and Taep’ung International Investment Group signed a letter of cooperation intent. The two sides are to cooperate on the DPRK Kimch’aek Metallurgy Park Project, and the DPRK So’ngjin Iron, Steel, Coal, and Electricity Project. Tangshan is to build a steel smelting plant in the DPRK with an annual steel output of 1.5 million tons. It is to be jointly funded by the DPRK side and is to involve joint development and utilization of nearby iron ore. The China Iron and Steel Group reportedly is ready to develop a molybdenum mine in the DPRK with a goal of producing more than 10,000 tons of molybdenum concentrate per year. China and the DPRK have signed a “PRC-DPRK Inter-Governmental Agreement on Joint Development of Offshore Oil” to pursue joint energy projects. China’s Jilin Province also has cooperated with the Hyesan Youth Copper Mine (containing the largest copper deposit in Asia), Manp’o Zinc and Lead Mine, and the Hoeryo’ng Gold Mine in the DPRK. One project is to transmit electricity from Jilin’s Changbai County to the DPRK in exchange for the gold, copper, and other ores. The joint project is to install power transmission facilities with an estimated total investment of 220 million yuan ($27.5 million). China’s Heshi Industry and Trade Company along with the International Mining Company have set up a joint venture with the DPRK’s So’gyo’ng 4 Trade Company called the “DPRK-China International Mining Company.” The Chinese side is to provide equipment and capital, while the DPRK side is to contribute mineral resources and the existing facilities. In October 2005 China Minmetals also signed with the DPRK side an “Agreement on Establishing A Joint Venture in Coal Industry in the DPRK,” which called for establishing a joint venture with the DPRK at the Ryongdu’ng Coal Mine. On August 23, 2004, China’s Zhaoyuan Shandong Guoda Gold Stockholding Company and the DPRK Committee for the Promotion of External Economic Cooperation agreed to establish a joint venture mining company to mine the gold in the DPRK’s Mt. Sangnong and to ship all the mined gold concentrate to Zhaoyuan for smelting. The DPRK’s Sangnong Gold Mine is estimated to have at least 150 tons of mineable gold. However, due to a shortage of capital and backward technology, it has been in a state of semi-stoppage of production. Guoda is to provide equipment and technology and is to ship the mineral ores by sea to Zhaoyuan for smelting.

INTERNATIONAL TRADE Despite North Korea’s isolation and emphasis on juche, it does trade with other countries. According to trade statistics compiled by the International Monetary Fund, the DPRK had at least some trade with 80 of the 182 countries or customs territories that report their trade data to the Fund. [77] For Pyongyang, the foreign economic sector plays an important role in that it allows the country to import food, technology, and other merchandise that it is unable to produce in sufficient quantities at home. Since North Korea does not export enough to pay for its imports, it generates a deficit in reported merchandise trade that must be financed by other

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means. Pyongyang has to find sources of foreign exchange — other than from its overtly traded exports — to pay for the imports. Experts point out that the DPRK has used its military threat to “extort” aid and other transfers from the United States, Japan, South Korea, and the humanitarian agencies. This, along with various illicit activities, has helped Pyongyang to finance a surfeit of imports. Detailed data on the country’s external economic relations suffer from reliability problems similar to those associated with the domestic economy. The foreign economic data on actual commercial transactions, however, tend to be more accurate since they also are reported by trading partner countries and are compiled by the International Monetary Fund and United Nations. Individual countries, for example, report on their imports from and exports to North Korea. These mirror statistics, however, differ from North Korea’s actual annual numbers because of differences in data gathering methods, coverage, timing, and reporting. Countries also may misreport trade with the Republic of Korea as trade with the Democratic People’s Republic of Korea. Detailed and reliable data on trade in military equipment and illegal drugs also are notoriously difficult to obtain and to verify. South Korea also compiles statistics on trade with North Korea that differ from its data reported to the United Nations. South Korea considers trade with the North as inter-Korean trade, not foreign trade. The trade figures that South Korea reports to the IMF for its commercial transactions with the North are considerably lower than the figures that it reports as inter-Korean trade [usually available from the Korea Trade-Investment Promotion Agency (KOTRA)]. The inter-Korean trade data reported by South Korea also include more detail on non-transactional trade (mostly foreign aid) with North Korea. IMF data also differ somewhat from those reported by data vending companies (such as Global Trade Atlas and Global Insight). This chapter uses a combination of trade totals (mirror statistics) from the IMF, partner country data from the Global Trade Atlas, intra-Korean trade from South Korea’s KOTRA, and references some estimates of total trade from Global Insight. The DPRK’s policy of juche, its suspicion of foreign countries, and the collapse of its industrial production, has resulted in a minimal level of commercial relations with other nations in the world. This trade has been rising in recent years, although much of this increase can be attributed to investments by South Korea and China in DPRK mining and manufacturing. As shown in Table 1, in 2007 North Korea exported an estimated $1,854 million in merchandise (down from $2,048 million in 2006) while importing $3,242 million (up from $2,962 million in 2006) for a merchandise trade deficit of $1,388 million. In recent years, North Korea’s exports to and imports from China and South Korea have risen. South Korea and China account for 73% of North Korean exports and 75% of North Korean imports. Economic sanctions imposed by Japan have reduced that bilateral trade to almost nothing. North Korea’s major trading partners have been China, South Korea, Japan, Russia, Germany, Thailand and India (as well as Brazil, Singapore, and Hong Kong). As shown in Figure 4 and Table 1, North Korea’s major import sources have been China, South Korea, Russia, Japan, and Thailand. Germany and India also are major suppliers. Major imports by North Korea include machinery, minerals, plant products, and chemical products. [78] In particular, imports of energy materials and foods reflect Pyongyang’s attempts to remedy these fundamental shortages.

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Table 1. Estimated North Korean Trade by Selected Trading Partner, Selected Years, 1994-2007 ($ in millions) North Korean Exports to: 1994 1999

2000

2001

2002

2003

2004

2005

2006

2007

World

1,039

1,030

1,307

1,148

1,278

1,251

1,524

1,683

2,048

1,854

China

181

42

37

167

271

395

586

499

468

584

Japan

328

201

257

226

235

174

164

132

78

0

S. Korea

176

122

152

176

272

289

258

340

520

765

Russia

44

7

8

17

11

3

5

7

20

34

India*

13

17

20

3

5

1

4

8

9*

41*

Thailand

9

3

19

24

45

57

91

133

148

34

Germany 57 24 North Korean Imports from: 1994 1999

25

23

29

24

22

45

17

16

2000

2001

2002

2003

2004

2005

2006

2007

World

1,286

1,353

1,859

3,083

1,970

2,049

2,615

3,093

2,962

3,242

China

467

329

451

573

468

628

799

1,081

1,232

1,393

Japan

171

148

207

1,066

133

92

89

62

44

9

S. Korea

18

212

273

227

370

435

439

715

830

1,032

Russia

70

48

38

62

69

111

205

206

190

126

India

41

35

173

162

182

157

121

55

105

660

Thailand

13

38

189

106

172

204

239

207

216

184

Germany

59

32

53

80

139

71

68

63

63

34

Balance of Trade

-247

-323

-552

-1,935

-692

-799

-1,090

-1,410

-914

-1,388

Source: S. Korean data from S. Korea, Unification Ministry. World trade data from U.N. COMTRADE Database, accessed via U.S. Department of Commerce, Trade Policy Information System, August 2008. Country data from Global Trade Atlas and U.N. COMTRADE Database. World trade totals mirror data derived from U.N. reporter country trade with North Korea plus inter-Korean trade reported by South Korea and adjusted Indian data for 2006 and 2007. *Data for Indian imports from North Korea seem in error for 2006 and 2007. (Items such as electrical machinery and parts, in particular, likely actually were imported from South Korea.) After comparing reported Indian data with that for China, 2006 imports by India from North Korea of $475 million were reduced to $9 million, and 2007 imports of $173 million were reduced to $41 million.

Despite current tensions over Pyongyang’s nuclear program, imports appear to be growing and are estimated to have exceeded their peak in 2001 when a large shipment of food aid from Japan artificially increased the import total. Fuel imports from China, food imports from various countries, and supplies of material and components for assembly in the Kaesong Industrial Complex account for most of the increases. In 2007, imports from the United States

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and Japan were virtually nonexistent. It is apparent that China and South Korea increasingly are becoming the largest sources of imports for the DPRK.

Source: Data from U.N. COMTRADE Database, Global Trade Atlas, and (South) Korea Unification.

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Figure 4. North Korean Imports of Merchandise by Major Country of Source, 1994-2007.

Sources: United Nations, COMTRADE Database and Global Trade Atlas using partner trade data. South Korean data from Korea Unification Ministry. Figure 5. North Korean Exports of Merchandise by Major Country of Destination, 1994-2007.

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Major export markets for the DPRK have been China, Japan, and Thailand with South Korea developing as a major market following the easing of relations. (See Figure 5 and Table 1.) In Europe, Germany has been North Korea’s major trading partner, and in Latin America, Brazil is developing as a market for North Korea’s exports. Since 2003, exports to Japan have declined — due to trade sanctions and friction over the DPRK’s admitted kidnappings of Japanese citizens. North Korea’s major exports include ores, coal, animal products, textiles, machinery, electronic products, and base metals. A recent remarkable development has been North Korea’s increase in exports of primary products (such as fish, shellfish and agro-forest products) as well as mineral products (such as base metallic minerals). Pyongyang reportedly has imported aquaculture technology to increase production of cultivated fish and agricultural equipment to increase output of grains and livestock. It also has imported equipment for its coal and mineral mines. Much of the coal and mineral exports have resulted from partnering with Chinese firms through which the Chinese side provides modern equipment in exchange for a supply of the product being mined or manufactured. The production from the Kaesong Industrial Complex also has become significant. North Korean imports from South Korea and China both exceeded $1 billion in 2006, and North Korean exports to South Korea reached $765 million and to China $582 million. Meanwhile, traditional exports of textiles and electrical appliances have been declining. This reflects North Korea’s unstable power supply, lack of raw materials and components imported from abroad, and the need to ship finished goods to China or another third country for final inspection. This diminishing ability of North Korea to provide a reliable manufacturing platform for the least complicated assembly operations without help from foreign investors does not bode well for the country’s future ability to generate the exports necessary to balance its trade accounts.

OTHER SOURCES OF FOREIGN EXCHANGE North Korea’s annual merchandise trade deficit of about $1 billion implies that Pyongyang must either be receiving imports without immediate payment required (aid and capital flows) or be generating foreign exchange through some means — either legal or illegal. Legal means include borrowing, foreign investments, foreign aid, remittances from overseas North Korean workers, selling military equipment not reflected in trade data, and by selling services abroad. Illegal methods include the counterfeiting of hard currency, illegal sales of military equipment or technology, sales of illegal drugs, or by shipping illegal cargo between third countries. The country also can dip into its foreign exchange reserves. [79]

Legal Sources of Funds North Korea is able to borrow on international capital markets. As of the fourth quarter of 2007, the country had loans from foreign located banks that report to the Bank of International Settlements (BIS) of $50 million (down from $116 million at the end of 2006 and $121 million at the end of 2005, $81 million in 2004, and $190 million in 2003). The

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amount of loans for 2007 is a relatively small amount, only about $2 per capita. Total liabilities to BIS banks (including those located in North Korea) came to $1,532 million for the fourth quarter of 2007 (up considerably from $489 million in first quarter 2007). Most of these liabilities appear to be export credits. North Korea also had deposits of $388 million in BIS banks at the end of 2007. [80] International bond issues are not a major source of funds for North Korea. In May 2003, the country issued ten-year bonds — the first since 1950 — but since its sovereign securities are not rated by major Western credit rating agencies, the issue has generated little interest on international financial markets and is aimed at domestic investors. Pyongyang claims that a million people had signed up to receive the bonds, but many speculate that the deductions from the salaries of North Korean purchasers in amounts equivalent to four months’ wages to buy the bonds is not voluntary. [81] North Korea does not pay interest on the bonds. Rather the government holds a lottery in which the winners receive monetary prizes greater than the foregone interest on the bonds. [82] Table 2. North Korea: Total Net Receipts by Major Source/Donor, 2000-2006 ($millions)

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Total Receipts Net 2000

2001

2002

2003

2004

2005

2006

U.S.

1.6

0.3

131.2

42.9

56.5

6.9

0.4

Germany

-2.4

34.1

35.0

11.8

54.2

6.5

3.2

France

28.4

12.8

-656.4

447.7

1,151.1

6.2

-16.9

Australia

7.9

4.8

5.4

2.1

3.9

5.3

4.5

Norway

4.6

7.9

5.5

9.5

5.6

5.3

3.8

Sweden

3.5

3.4

4.3

4.9

46.2

59.4

-74.8

Switz.

1.0

6.1

2.1

4.0

3.9

4.2

7.0

UK

-7.4

1.1

-15.9

44.8

142.3

0.2

..

EC

25.0

40.3

61.2

30.9

31.4

19.4

12.1

Multilateral

46.4

65.0

40.1

51.7

47.5

41.5

23.3

World Food Program

0.6

0.6

0.1

3.2

7.5

8.4

1.8

Arab Countries

..

.4

1.8

1.3

10.8

5.7

2.1

Total

76.07

188.6

-440.2

593.4

1,529.6

148.7

59.6

Source: Organisation for Economic Cooperation and Development. Source OECD, International Development Statistics, on-line database. [http://stats.oecd.org] Note: Data are from OECD members, multilateral agencies, and 12 other reporting nations excluding South Korea, China, and Russia. Multilateral Agencies include the UN, International Fund for Agricultural Development, Arab Agencies, and European Community. EC = European Community. Total Receipts include Official Development Assistance + Other Official Flows + Private Flows. In 2006, the DPRK received $101.8 million from the Netherlands.

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Table 3. North Korea: Net Official Development Assistance by Major Source/Donor (Excluding Russia, South Korea, and China), 1999-2006 ($ in millions) Total Net Official Development Assistance 2000

2001

2002

2003

2004

2005

2006

U.S.

1.6

0.3

131.2

42.9

56.0

7.9

0.4

Germany

1.5

27.0

33.2

7.2

7.5

5.2

2.9

France

1.7

0.3

0.5

-0.4

-0.5

-0.4

0.6

Australia

7.1

4.6

2.0

2.1

3.3

4.6

2.7

Norway

3.3

2.5

3.6

4.4

5.6

5.3

3.8

Sweden

3.5

3.4

4.3

4.9

5.4

5.5

5.1

Switzerland

2.6

4.5

3.4

4.0

3.9

4.2

6.0

European Community

25.0

40.3

61.2

30.9

31.4

19.4

12.1

Multilateral Agencies (not EC)

1.6

1.8

3.1

4.0

1.1

2.7

1.7

Non DAC*

—

0.4

1.87

1.4

11.1

5.9

2.3

Total

73.3

117.6

265.2

131.0

160.8

86.8

54.5

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Source: Organisation for Economic Cooperation and Development, Development Statistics database. *Non DAC=Non-OECD Development Assistance Committee, such as Thailand and Poland.

Although North Korea is not a major recipient of foreign direct investment (FDI), in 2006, the stock of foreign direct investment in the DPRK was $1,565 million. The inflow that year was $135 million, up from the inflow of $50 million in 2005, but less than the $197 million in 2004, and $158 million in 2003. [83] The FDI comes mainly from South Korea and China. North Korea’s free trade zones, particularly the Kaesong Industrial Complex, however, are attracting more foreign direct investment. In addition, South Korea’s Hyundai Corporation secretly paid North Korea nearly $500 million, partly in money borrowed from the South Korean government just a week before the two nations held a historic summit in June 2000. This was part of an estimated billion dollars or more Hyundai was to pay for exclusive rights to engage in seven major economic projects there. [84] A major source of funding for imports into the DPRK has been foreign aid or direct government transfers. Both developmental and humanitarian aid and past assistance under KEDO (Korean Peninsula Energy Development Organization, created under the 1994 Agreed Framework, but construction was terminated in 2003) to build two light water nuclear reactors and provide heavy fuel oil have enabled imports into North Korea without financing from Pyongyang. North Korea also receives funds in the form of official development assistance (ODA) from aid donor nations, multilateral development banks, and other organizations; other official flows; and private flows. The Organisation for Economic Co-operation and Development (OECD) compiles these data from its member nations plus 12 others and from multilateral agencies. The OECD data, however, do not include reporting from South Korea (Seoul considers transactions with the North as intra-country, not as foreign), China, or

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Russia (not members of the OECD). As shown in Table 2, in 2004, net total receipts for North Korea came to $1,529.6 million from donors, primarily because of a $1.15 1.1 million receipt from France, $142.3 million from the United Kingdom, and $56.5 million from the United States. In 2005, however, the net total dropped to $148.7 million as the dispute over North Korea’s nuclear program escalated, and fell further to $59.6 million in 2006 as North Korea made significant repayments of previously received funds. As shown in Table 3, much of the total receipts by North Korea came in the form of official development assistance. In recent years, the country has received between $46 and $286 million in net official development assistance (ODA) from the countries and agencies that report such data to the OECD (does not include Russia, China, and South Korea). In 2004, total net ODA was $120.8 million, in 2005 was $64.7 million, and in 2006 was 45.7 million. The major donors have been the multilateral agencies, European Community, the United States, Sweden, Norway, and Germany. The United States also has paid North Korea to search for remains of American servicemen missing from the Korean War. In 2003, it paid $2.1 million to conduct four searches. [85]

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Table 4. Economic Aid and Other Official Flows From South Korea to North Korea, 2000-2004 and Total 1995 to 2004 ($ in millions) Year/ Type

2000

2001

2002

2003

2004

Total 1995-2004

Total

706.5

453.2

584.9

650.4

543.3

3,279.7

KEDOa

308.9

271.1

288.7

333.0

137.1

1,365.2

Food Aid Pledges

93.4

17.3

120.4

122.2

164.6

794.9

Fertilizer Pledges

83.4

49.5

66.6

70.1

89.8

387.9

Road & Rail Links

12.9

69.6

53.5

94.1

92.6

322.7

Payment for 2000 Summit

200.0

Mt. Kumgang Toursb

—

34.8

43.9

5.1

6.8

90.6

Aid to ROK Business

0.4

0.8

2.2

10.7

11.9

26.1

21.8

21.8

Kaesong Industrial Complexb Family Reunions

2.4

1.0

1.6

2.5

2.8

10.7

Otherc

5.0

9.1

7.9

12.8

15.9

50.7

Source: CRS Report RL3 1785, Foreign Assistance to North Korea, by Mark E. Manyin, Appendix A. See report for data sources and analysis. a. Korean Peninsula Energy Development Organization. b. Republic of Korea Export-Import Bank’s “DPRK Support Fund”. c. Includes Cultural Exchanges and Aid to non-governmental organizations.

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As indicated in Table 4, between 2000 and 2004, South Korean government assistance to North Korea ran at around $500 million per year. South Korean civilian organizations also provided assistance to North Korea ($71 million in 2003). [86] The KEDO item is for energy and funds provided to the Korean Peninsula Energy Development Organization in exchange for North Korea’s pledge to dismantle its existing nuclear program. This program has been halted. [87] Another major source of income for certain North Korean families has been in remittances from overseas Koreans, particularly those who live in Japan. [88] Most of the North Koreans in Japan either remained there after World War II or are descendants of those people. Some had been forcibly brought there to work in coal mines or factories during the 50-year Japanese occupation of Korea. Currently, of the approximately 650,000 ethnic Koreans who live in Japan, an estimated 56,000 to 90,000 are from the North Korean area, and many are reported to be actively involved in supporting the Pyongyang regime. Ethnic Koreans in Japan work in a variety of businesses and occupations, but they face discrimination in Japanese society and are known for operating pachinko (pinball) parlors and other enterprises providing entertainment and night life as well as being involved with Japan’s yakuza or gangsters. Many of these, as well as managers of North Korean-related credit unions, regularly have sent remittances to relatives or associates in North One unusual method of smuggling money to North Korea has been to hide 10,000 yen bills (worth roughly $90 each) under expensive melons being shipped to Kim Jong-il as gifts. [89] Given the decade of stagnation of the Japanese economy and rising tensions between Japan and North Korea, these remittances have reportedly been declining. A 2003 Japanese newspaper report placed the amount at between $200 million and $600 million per year, but that figure could be exaggerated. [90] In testimony before parliament, Japan’s Finance Minister stated that in Japan’s FY2002, $34 million had been sent from Japan to North Korea through financial channels that required reports to the Japanese government. [91] A working estimate would be approximately $100 million per year in such remittances. Anecdotal evidence indicates that considerable amounts of currency from Japan are simply carried by individuals on ships and not reported. More than 1,000 North Korean freight vessels had been traveling between North Korea and Japan each year. Japan, however, has tightened inspections of North Korean ships and curtailed operations of ferry boats traveling between the two countries. [92] In summary, the DPRK’s net total receipts plus remittances, aid and investments from South Korea, and special food and fuel assistance in connection with negotiations over Pyongyang’s nuclear program, constitute most of the overt resource inflows that North Korea receives each year over and above its export earnings. These amount to perhaps $700 million on net per year. North Korea must finance the remainder of its trade deficit — about $800 million — by other means. It appears that these other means include exports of military equipment and illicit activity.

Illegal or Questionable Sources of Funds [93] Data on North Korean sales of military equipment abroad is understandably murky, but the country is thought to have sold hundreds of ballistic missiles to Iran, Iraq, Syria, Pakistan, and other nations in the past decade to earn foreign currency. [94] The interdiction by Spain

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of an unmarked vessel in December 2002 containing parts for 12 to 15 Scud missiles (valued at about $4 million each) bound for Yemen from North Korea is one example of such arms sales. [95] In testimony before the House Committee on International Relations, the Undersecretary of State for Arms Control and International Security pointed out that North Korea possesses Scud and NoDong missiles and is developing the Taepo-Dong 2. He stated that the country is by far the most aggressive proliferator of missiles and related technologies to countries of concern. These sales are one of the North’s major sources of hard currency. [96] According to a U.S. military officer quoted in the Japanese press, North Korea exported $580 million worth of ballistic missiles to the Middle East in 2001. [97] Between 1998 and 2001, North Korea is estimated to have exported some $1 billion in conventional arms to developing nations. [98] With respect to illegal drug trade, officials from the U.S. military command in Seoul reportedly said that North Korea is earning between $500 million and $1 billion annually from the narcotics trade. [99] North Korea is thought to produce more than 40 tons of opium per year which would make it the world’s third-largest opium exporter and sixth-largest heroin exporter. The regime also is accused of trafficking in methamphetamine stimulants. U.S. counter-narcotics officials are reported to have said that since 1976, there have been at least 50 arrests or drug seizures involving North Koreans in more than 20 countries. Japanese authorities say that nearly 50% of illegal drug imports into Japan come from North Korea. [100] According to the U.S. State Department, although such reports have not been conclusively verified by independent sources, defector statements have been consistent over years and occur in the context of regular narcotics seizures linked to North Korea. The State Department’s International Narcotics Control Strategy Report for 2007 stated its view is “that it is likely, but not certain, that the North Korean government has sponsored criminal activities in the past, including narcotics production and trafficking, but notes that there is no evidence for several years that it continues to traffic in narcotics.” During 2006, the Japanese media reported that drug trafficking occurred along the DPRK-PRC border with Japanese criminal figures traveling to the border area to purchase methamphetamine for smuggling back to Japan. According to the State Department, in March 2006, a new decree warned citizens, state factories and groups in the DPRK to “... not sell, buy, or use drugs illegally” and that “organizations, factories and groups should not illegally produce or export drugs.” Punishment is severe, up to death, and the family members and shop mates of offenders face collective responsibility and punishment with the perpetrator. [101] In a blatant incident in May 2003, the Australian navy and special forces commandeered a North Korean ship (Pong Su) off the country’s southern coast that allegedly was moving 110 pounds of almost pure heroin valued at $50 million. The ship apparently picked up the heroin elsewhere in Asia and took a circuitous route to Australia. [102] Allegations also have been made that North Korea engages in counterfeiting operations, particularly of U.S. $100 notes. It is believed that the country has earned $15 million to $20 million per year in counterfeiting, [103] but it is not clear that North Korea currently engages in counterfeit currency production, although such notes still reportedly circulate. In the opinion of a North Korean expert at Seoul’s Sejong Institute, “North Korea’s economy had received a death sentence long ago, but it keeps afloat thanks to international aid and the country’s trading in weapons and illicit goods.” [104]

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Since late 2005, the United States has taken several measures to reduce illicit financial activities by North Korea. On June 28, 2006, President Bush issued Executive Order 13382 (Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters). [105] On October 21, 2005, pursuant to Executive Order 13382, the U.S. Treasury designated eight North Korean entities as proliferators of weapons of mass destruction and their delivery vehicles. The action prohibited all transactions between the designated entities and any U.S. person and froze any assets the entities may have had under U.S. jurisdiction. [106] On September 15, 2005, the U.S. Treasury designated Banco Delta Asia SARL as a “primary money laundering concern” under Section 311 of the Patriot Act because it represented an unacceptable risk of money laundering and other financial crimes. Treasury stated that “Banco Delta Asia has been a willing pawn for the North Korean government to engage in corrupt financial activities through Macau ....”[107] On March 14, 2007, the Treasury finalized its rule against Banco Delta Asia, barring the bank from accessing the U.S. financial system, but allowing the $25 million in North Korean funds held to be released.

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U.S.-DPRK TRADE RELATIONS U.S. trade with the DPRK is quite limited. The United States does not maintain any diplomatic, consular, or trade relations with North Korea, and the country does not have normal trade relations (most favored nation) status. This means that North Korean exports are subject to the relatively high tariffs existing before World War II in the United States. For example, women’s blouses of wool or cotton carry a 90% import duty if from North Korea but are duty free if from free-trade agreement countries, such as Canada, Israel, or Mexico, or are subject to 9 to 10% duty if from most other nations. As a communist nation, North Korea also does not qualify for duty-free treatment of certain products that are imported from designated developing countries under the generalized system of preferences program. [108] The United States, moreover, maintains various economic sanctions on North Korea because the country is on the U.S. State Department list of state supporters of international terrorism, is considered a threat to national security, is a communist state, and it proliferates weapons of mass destruction. [109] In June 2008, however, the Bush Administration announced that it was lifting restrictions under the Trading with the Enemy Act and was starting the process to remove the DPRK from the list of State Sponsors of Terrorism. Other sanctions, including U.N. sanctions imposed following North Korea’s nuclear test, still remain in place. The United States resumed shipments of food and heavy fuel oil to North Korea as humanitarian aid. Travel to and trade with North Korea in other than dual-use goods are allowed if overarching requirements are met, and there are no restrictions on the amount of money Americans may spend in the DPRK. The sanctions related to the proliferation of weapons of mass destruction generally target the offending entities. North Korean assets in the United States frozen prior to June 19, 2000, remain frozen. North Korea is on the most restricted list of countries for U.S. exports (Country Group E list) of items such as computers, software, national security- controlled items, items on the Commerce Control List, [110] and service or repair of such items. Economic sanctions on North Korea, however, are essentially unilateral by the United States. Most other nations (except Japan) allow relatively free trade in non-sensitive goods with the DPRK.

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Table 5. U.S. Trade by Commodity With the Democratic People’s Republic of Korea (North Korea) in 2004-2006 ($ in thousands) SITC Category

U.S. Exports

Year

2004

Cereals and Cereal Preparations

10,28 5

U.S. Imports

2005

2006

2007

2004

05

06

07

2,277

0

1,728

0

0

0

0

4,259

0

0

0

0

0

0

0

Vegetables

3,461

1,806

0

0

0

0

0

0

Preparations of Cereal, Flour, starch or Milk; Bakers Wares

2,459

0

0

0

0

0

0

0

1,573

0

0

0

0

0

1,157

0

0

0

0

0

0

0

Misc. Textile Articles

191

0

0

0

0

0

0

0

Organic Chemicals

0

0

0

0

1,418

0

0

0

Woven Apparel

0

0

0

0

77

0

0

0

Tools, Cutlery

0

0

0

0

0

3

0

0

Books, Newspapers

0

0

3

0

0

0

0

Total

23,75 0

5,757

3

1,728

3

0

0

Fixed Vegetable Fats and Oils

Misc. Grain, Seed, Fruit Dairy Products and Birds’ Eggs

1,495

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Source: U.S. Department of Commerce accessed through World Trade Atlas.

In October 2007, President Bush reportedly approved the lifting of some sanctions imposed on the DPRK under an act governing human trafficking. This easing allowed the United States to provide assistance in educational and cultural exchanges to the extent that the aid doesn’t damage its national interest. [111] In February 2008, the New York Philharmonic Orchestra performed in Pyongyang. [112] In October 2007, the White House requested $106 million “to provide Heavy Fuel Oil or an equivalent value of other assistance to North Korea on an “action-for-action” basis in support of the Six-Party Talks in return for actions taken by North Korea on denuclearization. [113] The Consolidated Appropriations Act, 2008 (H.R. 2764, PL 110-161, Signed December 26, 2007) provided for up to $53 million for energy-related assistance for North Korea. The United States uses trade with North Korea as leverage and to send a message of disapproval for various activities by Pyongyang. As the six-party nuclear talks have progressed, however, the United States has expressed its willingness begin discussions to normalize relations with the DPRK, has taken steps to remove it from the terrorism list, [114] and has indicated its willingness to negotiate a peace treaty to formally end the Korean Conflict. The way also could be opened for North Korea’s admission to membership in international financial institutions (such as the World Bank, International Monetary Fund, and Asian Development Bank). This would allow the DPRK to receive development assistance that would help finance additional imports from countries such as the United States.

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Table 5 shows U.S. trade with North Korea for 2004-2007. In 2004, U.S. exports to the DPRK of $23.8 million were mostly for food provided as humanitarian aid. In 2005, food aid was down to $5.8 million, and in 2006 had ceased. In 2006, the only U.S. exports were books and newspapers worth $3,000. With some progress in the Six-Party Talks, in 2007, U.S. exports of white wheat to North Korea rose to $ 1.728 million. As for imports, in 2004, the United States imported $1.5 million in organic chemicals plus $77,000 in woven apparel from North Korea. In 2005, imports had dropped to $3,000 worth of tools and cutlery, and were nil in 2006 and 2007. Table 6 shows U.S. merchandise exports, imports, and trade balances with North Korea since 1990. Imports have been zero or relatively low with a peak of $1,495,000 in 2004. Almost all of these imports from North Korea were organic chemicals and woven apparel. A possible concern is that imports of books, newspapers, and manuscripts have dropped to zero.

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Table 6. U.S. Merchandise Exports, Imports, and Trade Balances with North Korea, 1990-2007 ($ in thousands) Year

U.S. Exports

U.S. Imports

Balance

1990

32

0

32

1991

484

10

474

1992

83

0

83

1993

1,979

0

1,979

1994

180

0

180

1995

11,607

0

11,607

1996

541

0

541

1997

2,409

0

2,409

1998

4,454

0

4,454

1999

11,265

29

11,236

2000

2,737

154

2,583

2001

650

26

624

2002

25,012

15

24,997

2003

7,977

0

7,977

2004

23,750

1,495

22,255

2005

5,757

3

5,754

2006

3

0

3

2007

1,728

0

1,728

Source: U.S. Department of Commerce through World Trade Atlas.

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For a country with great strategic importance to the United States, information on North Korea is not flowing directly into the U.S. market. U.S. exports at $23,750,000 in 2004 rose from $32,000 in 1990 to $25,012,000 in 2002. Another peak occurred in 1995 when U.S. exports totaled $11,607,000. Of this amount, $10,810,000 was in cereals. The small annual deficit in U.S. trade with North Korea arises primarily from food aid that has been provided to the DPRK. According to the U.S. Department of Commerce, the United States has no direct investment in North Korea. [115] An American company interested in doing business in North Korea, particularly establishing a company, likely would work through an overseas subsidiary. Some American business executives with the U.S. Chamber of Commerce in South Korea, for example, reportedly travel to North Korea for business purposes, [116] and some U.S. enterprises reportedly are working as subcontractors in the development of North Korea’s Kaesong industrial complex. [117]

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NORTH-SOUTH KOREAN ECONOMIC RELATIONS Economic relations have been a major route for opening relations between North and South Korea. Seoul has a major stake in relations with the DPRK and the outcome of the current Six-Party Talks. [118] It seeks a “soft landing” for the current standoff over the North’s nuclear program — one that will lead to a lessening of tensions and steady integration of North Korea’s economy into the global economic and financial system. As with other countries divided by ideology and a history of hostilities as “pawns” on the chess board of the Cold War, the two halves of the peninsula face numerous issues to be resolved before they can normalize relations — let alone contemplate reunification. South Korea has much to gain from rapprochement with the North. Its strategy has been to use its economic leverage and family reunions (families separated by the division of the Korean Peninsula) to open channels with the North Korean people while maintaining a credible military deterrent to overt hostile action by Pyongyang. South Korea recognizes that essentially it has won the Cold War on the Korean peninsula, but it recoils at the prospect of funding economic rehabilitation in the DPRK as West Germany did with East Germany. Seoul also recognizes that its economic ties are gradually shifting from reliance on the American market to greater integration with China, Japan, and other countries of Asia. Its labor costs are rising, and many of its companies are remaining competitive only by manufacturing in China and other low-wage markets. For them, the prospect of abundant cheap labor just a short distance to the north is appealing and perhaps an alternative to cheap labor in China. In 2007, total merchandise trade between the two Koreas increased to $1,797.9 million, up from $1,349.7 million in 2006 and more than triple the $403.0 million just six years earlier. The largest increases have been in South Korean exports which reached $1,032.6 million, up 24% from $830.2 million in 2006. Imports from North Korea also rose to $765.3 million, up 47% from $519.6 million in 2006. Much of the increase in exports has been in the form of food and industrial goods. In 2006, $419.3 million in South Korean exports to the North were actually South Korean aid shipments.

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Table 7. South Korean Merchandise Trade with North Korea, 1990-2007 ($ in thousands)

Year

South Korean Imports

South Korean Exports

Total Trade

Balance

1990

12,278

1,188

13,466

-11,090

1991

105,719

5,547

111,266

-100,172

1992

162,863

10,563

173,426

-152,3

1993

178,167

8,425

186,592

-169,742

1994

176,298

18,249

194,547

-158,049

1995

222,855

64,436

287,291

-158,419

1996

182,400

69,639

252,039

-112,761

1997

193,069

115,270

308,339

-77,799

1998

92,264

129,679

221,943

37,415

1999

121,604

211,832

333,436

90,228

2000

152,373

272,775

425,148

120,402

2001

176,170

226,787

402,957

50,617

2002

271,575

370,155

641,730

98,580

2003

289,252

434,965

724,217

145,713

2004

258,000

439,000

697,000

181,000

2005

340,300

715,500

1,055,800

375,200

2006

519,563

830,198

1,349,761

310,635

2007

765,346

1,032,550

1,797,896

267,204

Sources: South Korea Ministry of Unification, KOTRA.

The major items purchased by South Korea from the North include food/aquatic/forestry products, textiles, steel/metal products, and electronics. The major South Korean exports to North Korea include chemicals, textiles, machinery, steel/metal products, and food/forestry products. Since 1992, particularly under the Sunshine Policy of former South Korean President Kim Dae Jung and under the Policy for Peace and Prosperity of former President Roh Moohyun, Seoul has permitted its corporations to pursue business interests in North Korea. In 2003, the government allowed activities by 89 companies including 35 involved in contract processing (assembly, sewing, or other processing done under contract) by North Koreans.[119] The companies included Daewoo (jackets, bags), Samsung Electronics (communications center, switchboard), Samcholi Bicycle, Green Cross (medicine), International Corn Foundation (corn seeds), Hyundai (Mt. Kumkang tourism, development), and Hanshin Co. (glass). The Korea Electronic Power Corporation’s work on the construction

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of a light water nuclear power plant under the U.S.-North Korean 1994 Agreed Framework has been halted. [120] One global strategy of South Korean businesses is to develop processing sites in North Korea to take advantage of low labor costs there; in some cases, labor costs are competitive with those in China. The two countries also have taken some halting steps toward linking their economic systems. In addition to the business relationships, since September 2002, the two countries have been reconnecting the Gyeongui (SeoulSinuiju) and Donghae (East Sea) railway lines and adjacent highways. As discussed in the section above on Economic Reforms and Free Trade Zones, the focus of North-South economic cooperation now is the Kaesong Industrial Complex (KIC). Managed by South Korea’s Hyundai Asan and Korea Land Corporation and located just over the border in North Korea, this 810 acre complex already has attracted small and medium sized enterprises from South Korea. The KIC accounts for much of the increased commercial trade between the North and the South. In 2006, the KIC produced some $7.5 million worth of goods each month.121 It provides small- and medium-sized South Korean firms with a low-cost supply of labor for manufacturing products, provides jobs for North Korean workers, and provides needed hard currency for Pyongyang. North Korea depends more on South Korea in international trade than South Korea does on the North. North Korea accounts for less than 1% of total South Korean exports, while North Korean exports to South Korea account for more than a third of total North Korean exports. South Korea has access to global markets for many of its world class industries (automobiles, semiconductors, consumer electronics, etc.), while North Korea faces restricted markets for its limited array of exports. In his inaugural speech on February 25, 2008, President Lee Myung-bak indicated that South Korea attitude toward inter-Korean relations should be pragmatic, not ideological. He reiterated his plan to provide assistance in order to raise the per capita income of North Korea to $3,000 within ten years if Pyongyang denuclearizes. [122]

CHINA-DPRK ECONOMIC RELATIONS China remains North Korea’s chief ally. In addition to sharing its status as one of the last communist regimes in the world, China views the Korean peninsula as vital to its strategic interests. Beijing values North Korea as a buffer between the democratic South Korea and the U.S. forces stationed there, as a rationale to divert U.S. and Japanese resources in the Asia Pacific toward dealing with Pyongyang and less focused on the growing military might of China, and as a destination for Chinese foreign investment and trade. Beijing arguably has more influence in Pyongyang than any other nation. Cooperation between the two countries is extensive but often strained. In 1961, China and the DPRK signed a mutual defense pact, but recently a Chinese official reportedly said that they are not “well informed of the internal situation of the North Korean military” and that the DPRK “does not listen to what China has to say.” [123] (This presumably referred to Pyongyang’s missile and nuclear tests.) Also with respect to North Korean refugees, their first destination is usually northeastern China. According to Human Rights Watch, China labels North Korean border-crossers as illegal economic migrants, rather than refugees or asylum seekers, and usually sends them back to North Korea. [124]

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Dick K. Nanto and Emma Chanlett-Avery Table 8. China’s Merchandise Trade with the DPRK, 1995-2007 ($ in millions)

Year

China’s Imports

China’s Exports

Total Trade

China’s Balance

1995

63.609

486.037

549.646

422.428

1996

68.638

497.014

565.652

428.376

1997

121.610

534.411

656.021

412.801

1998

51.089

356.661

407.750

305.572

1999

41.722

328.634

370.356

286.912

2000

37.214

450.839

488.053

413.625

2001

166.797

570.660

737.457

403.863

2002

270.863

467.309

738.172

196.446

2003

395.546

627.995

1,023.541

232.449

2004

582.193

794.525

1,376.718

212.332

2005

496.511

1,084.723

1,581.234

588.212

2006

467.718

1,231.886

1,699.604

764.168

2007

581.521

1,392.453

1,973.974

810.932

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Sources: Chinese (PRC excluding Hong Kong) data as supplied by World Trade.

China also is hosting and facilitating the ongoing Six-Party Talks that seek a resolution to the North Korean nuclear problem. In August 2001, Chinese President Jiang Zemin visited Pyongyang and promised increased humanitarian and economic assistance. In April 2004, Kim Jong-il visited Beijing to discuss food aid and nuclear issues. According to Jane’s Information Group, several issues have arisen to cause friction in the Sino-North Korean relationship. These include • • • • • • •

Chinese exasperation at the DPRK’s failure to reform its economy; Pyongyang’s prevarication over the nuclear and peace treaty issues and the consequent dangerous stimulus this provides to proliferation in the region; The nuclear standoff with the United States and Pyongyang’s possession of nuclear weapons; Growing economic and political rapport between Pyongyang and Taipei; The North Korean refugee problem on the China-DPRK border; Pyongyang’s missile testing, prompting Japan to acquire a Theater Missile Defense system, with Taiwan wishing to be included; North Korea’s construction of underground missile sites close to the Chinese border; and

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•

97

North Korea’s cavalier attitude towards business. (China occasionally suspends shipments of humanitarian aid to the DPRK because Pyongyang regularly ‘forgets’ to return Chinese railroad rolling stock.) [125]

In 2006, Pyongyang’s missile and nuclear tests severely strained relations between China and the DPRK. Beijing had warned the DPRK not to conduct either of the tests and “lost face” when Pyongyang went ahead with them anyway. As a result, for the first time China agreed to UN resolutions imposing sanctions on the DPRK [126] and also took measures to halt banking transactions with North Korean entities and to curtail shipments of petroleum. China, however, did not agree to conduct inspections of shipments along its borders with North Korea. Some analysts indicate that Pyongyang may be growing weary of its lop-sided relations with Beijing and may be attempting to become more independent. Pyongyang may view nuclear weapons as a “trump card to intimidate China as much as the United States.” [127] Since the collapse of the Soviet Union, China has been the DPRK’s largest trading partner and supplier of concessional assistance (through subsidized trade and direct transfers). As an export market and source of imports, however, North Korea plays a relatively minor role for China. In 2007, the DPRK ranked 68th among China’s export markets — smaller than Peru, Egypt, or Hungary. As a source of imports, North Korea also ranked 68th — below Gabon, Yemen, or Belgium. Table 8 shows China’s merchandise trade with the DPRK. China is a major source for North Korea of imports of petroleum. According to Chinese data, exports to the DPRK of crude oil reached $282.0 million and shipments of oil (not crude) totaled $95.4 million. These two categories accounted for 27% of all Chinese exports to the DPRK. China, however, does not appear to be selling this oil to North Korea at concessionary prices. In 2007, the average price for Chinese exports of crude oil to North Korea was $0.54 per kilogram, while it was $0.49 for such exports to the United States, $0.43 for South Korea, $0.48 for Japan, and $0.29 for Singapore. [128] China also provides aid directly to Pyongyang. By bypassing the United Nations, China is able to use its assistance to pursue its own political goals independently of the goals of other countries. It is widely believed that Chinese food aid is channeled to the military. This allows the World Food Program’s food aid to be targeted at the general population without risk that the military-first policy or regime stability would be undermined by foreign aid policies of other countries. [129] In November 2003, China reportedly transferred responsibility for securing its border with North Korea from the police to its army. [130] Many of China’s two million ethnic Koreans live along this border, and it is a favorite crossing point for refugees from North Korea. In 2006, China built a 20-kilometer long fence along its border with North Korea. It is located primarily along areas where the Yalu River dividing the two countries is narrow and the river banks low. [131] Much of China’s trade with the DPRK goes through the port of Dandong on the Yalu River. In 2002, 40% of Chinese exports to and 11% of its imports from North Korea passed through Dandong. [132] China’s major imports from North Korea include mineral ores, mineral fuels (coal), woven apparel, fish and seafood, iron and steel, and wood. China’s major exports to North Korea include mineral fuels and oil, meat, electrical machinery, machinery, plastic, manmade filament, vehicles, and iron and steel. (See section of this chapter on foreign investments for activity by Chinese firms in the DPRK.)

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Dick K. Nanto and Emma Chanlett-Avery Table 9. Japan’s Merchandise Trade with the DPRK, 1994-2007 ($ in millions) Year

Japan’s Imports

Japan’s Exports

Total Trade

Japan’s Balance

1994

328.313

171.092

499.405

-157.221

1995

338.073

253.798

591.871

-84.275

1996

290.745

226.480

517.225

-64.265

1997

301.796

178.942

480.738

-122.854

1998

219.489

175.137

394.626

-44.352

1999

202.564

147.839

350.403

-54.725

2000

256.891

206.760

463.651

-50.131

2001

225.618

1,064.519

1,290.14

838.901

2002

235.840

132.645

368.485

-103.195

2003

174.390

91.445

265.835

-82.945

2004

164.299

88.743

253.042

-75.556

2005

132.277

62.505

194.782

-69.772

2006

77.776

43.816

121.592

-33.96

2007

0.000

9.331

9.331

9.331

Source: Japanese data as supplied by World Trade Atlas.

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JAPAN-DPRK ECONOMIC RELATIONS Japan’s economic relations with North Korea have declined sharply as tension over Pyongyang’s nuclear and missile programs has spiked. After North Korea test launched several missiles in July 2006 and then detonated a nuclear device in October 2006, Japan imposed strict unilateral sanctions, causing bilateral trade to plummet. Japan banned imports and most North Korean nationals from entering Japan, prohibited all North Korean ships from entering Japanese ports, and outlawed the export of “luxury goods” to North Korea, including caviar, jewelry, liquor, and any food known to be favored by North Korean leader Kim Jongil. Tokyo has also ceased sending any humanitarian aid to North Korea, and has refused to provide economic or energy assistance until their concerns with Pyongyang are resolved. This pattern is a reversal of earlier economic relations. Although Japan and North Korea have never established official diplomatic relations, the two nations maintained significant economic ties for well over a decade. From the end of the Cold War, Japan was second only to China among North Korea’s top trading partners. Bilateral trade declined considerably in the 1980s, but the drop was attributed primarily to the steep overall downturn of the North Korean economy as much as the state of bilateral relations. Before relations deteriorated, Japanese leaders made several efforts to normalize relations with North Korea, promising considerable economic assistance to the country. Since 2002, however, North Korea’s provocative missile and nuclear device tests, along with the issue of Japanese citizens kidnapped by North Korean agents in the 1970s and 1980s, has stalled any further diplomatic

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progress and retarded economic relations. From 200 1-2005, Japan’s share of North Korean trade declined as China, South Korea, and Russia expanded trade with Pyongyang. As indicated in Table 9, by 2007, total trade between Japan and the DPRK had fallen to $9 million from $1,290 million in 2001. In 2007, Japan had no imports from the DPRK and reported exports of $3 million in bicycles, $2 million in trucks, and $0.3 million in public transport vehicles. North Korea is Japan’s 168th largest export market, below Namibia, Bhutan, and Botswana. Before Japan stopped importing from North Korea, seafood made up almost half of the North’s exports to Japan, followed by electrical machinery, aluminum and articles thereof, mineral fuels, and apparel. North Korean clams and mats utake mushrooms are particularly prized in the Japanese market. Japan sent items such as vehicles, electrical machinery, boilers/reactors, manmade filaments, wool, and articles of iron or steel to North Korea. Some Japanese lawmakers have argued that Japan should expand the ban on imports from North Korea to cover exports as well. Japan’s food aid to North Korea has also dwindled as relations soured. The pattern of Japanese aid reflects developments in the political relationship between Tokyo and Pyongyang: shipments began in 1995 and 1996 when relations warmed, were temporarily suspended periodically as tensions mounted, and eventually ceased altogether in late 2004 because of disagreement over the abduction issue. Between 1995 and 2004, Japan provided 1.2 million metric tons of humanitarian food aid to North Korea, mostly through the United Nations World Food Program. [133] A group of pro-Pyongyang ethnic Koreans living in Japan known as the Chosen Soren (Chongryun in Korean) in the past provided North Korea with additional funds in the form of cash remittances and, possibly, facilitated illicit trade such as drug trafficking and counterfeiting. Although the exact amount of remittances is unknown, the total appeared to be in the neighborhood of $100 million per year but declined sharply since the early 1990s. A series of scandals involving ethnic Korean banks in Japan revealed that money was illegally channeled to North Korea through the network of Chosen Soren-affiliated credit unions. Following the missile tests in 2006, Japan froze fund transfers and overseas remittances by 15 groups and one individual suspected of links to North Korean weapons programs, and established rules that require financial institutions to report to the Japanese government remittances overseas of more than 300 million yen.

RUSSIA-DPRK ECONOMIC RELATIONS Russian reforms and the end of the Cold War greatly reduced the priority of the DPRK in the strategy of Russian foreign policy. Following Soviet support of North Korea in the Korean War, the USSR provided assistance to Pyongyang that helped equip its military and create its heavy industrial sector. In 1998, at the peak of the bilateral relationship, about 60% of North Korea’s trade was with the Soviet Union. Much of the trade was in raw materials and petroleum that Moscow provided to Pyongyang at concessional prices. Relations between the two cooled in the 1990s as Russia recognized South Korea, announced that trade with North Korea was to be conducted in hard currencies, and opted out of its bilateral defense agreement. [134]

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Table 10. Russia’s Merchandise Trade with the DPRK, 1994-2006 ($ in millions)

Year

Russia’s Imports

Russia’s Exports

Total Trade

Balance

1994

44.00*

52.00*

96.00*

8.00*

1995

15.00*

70.00*

85.00*

55.00*

1996

347.00*

525.00*

872.00*

178.00*

1997

16.790

72.449

89.239

55.659

1998

8.463

56.497

64.960

48.034

1999

7.208

48.507

55.715

41.299

2000

7.633

35.631

43.264

27.998

2001

14.664

56.099

70.763

41.435

2002

10.317

47.404

57.721

37.087

2003

2.903

112.343

115.246

109.440

2004

4.575

204.665

209.240

200.090

2005

6.862

224.402

231.264

217.540

2006

20.076

190.563

210.639

170.487

2007

33.539

126.068

159.607

92.529

Sources: Russian data as supplied by World Trade Atlas. * 1994-96 data from International Monetary Fund. Direction of Trade Statistics.

Recently, overall relations between Russia and North Korea have been improving. Russia is upgrading its railway connections with the DPRK and has been participating in an ambitious plan to build a trans-Korean railway. As is the case with China and South Korea, Russia is critical to North Korean security, since Russia shares a border with the DPRK, and Russian cooperation would be necessary to enforce any security guarantee. As fuel aid from abroad has decreased, moreover, North Korea has turned again toward Russia as a source of supply. An observer of Russia-DPRK relations views Russian policy toward North Korea as an important component of Moscow’s general strategy toward what it considers the critically important Asia-Pacific region. Russia’s strategic course includes a calculating and pragmatic approach toward North Korea and the Korean Peninsula in general. Moscow has gained unique and exclusive communications capabilities with Pyongyang based on the development of trust between the leadership of the two states at the highest political levels. [135] This observer also points out that the perspective of Russia on the North Korea nuclear issue does not fully coincide with that of the United States. While Moscow has insisted on a

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denuclearized Korean peninsula and the irreversible dismantlement of North Korea’s nuclear weapons and nuclear development programs, it also firmly supports the peaceful resolution of the issue. Russia is a participant in the Six-Party Talks. Moscow apparently has concluded that the Kim Jong-il regime does not face impending collapse, and therefore, outside pressure and economic sanctions intended to bring about regime change work only to increase tensions and the probability of a military confrontation. Russia also does not favor a Korean Peninsula unified by military force with American help. This would put U.S. forces on the RussiaKorean border. Rather, Russia supports a unified Korea that would maintain friendly relations with all countries, including Russia, and opposes foreign interference in the unification process. [136] As is the case with China, Russia also is concerned that economic hardships in the DPRK push refugees across the border into Russian territory. Moscow also supported U.N. Security Council Resolutions in 2006 that condemned North Korea’s missile and nuclear tests. This has cooled the relationship to some extent. The DPRK’s trade with Russian lags behind what it has been in the past. In 2007, North Korea ranked 88th among Russia’s sources of imports (below Jamaica and Ghana) and 81st in terms of markets for Russian exports (below the Virgin Islands and Gibraltar). The increasing volume of Russian mineral fuel exports to the DPRK has moved Russia past Japan, Germany, and Thailand to become North Korea’s third largest trading partner. Major Russian exports to the DPRK include mineral fuels, aircraft, iron/steel, wood and pulp, paper, and non-rail vehicles. The large increase in Russian exports have come mostly in mineral fuels which increased from $20 million in 2002 to a peak of $224.4 million in 2005 before declining to $190.6 million in 2006 and $73.5 million in 2007. Of these, solid fuels from coal and oil accounted for the majority of the exports. Pyongyang has had to turn to Russia as a source for energy as supplies of fuel oil from the United States, Japan, and South Korea were curtailed as the Six-Party Talks bogged down. Major Russian imports from North Korea include machinery, electrical machinery, and manmade staple fibers. In December 2006, Russia reportedly agreed to write off some 80% of the $8 billion in debt owed it by the DPRK. North Korea had borrowed the funds in the 1960s to build power plants. This opens the way for Russia to engage in more economic cooperation with the DPRK and to facilitate progress in the Six-Party Talks. [137]

U.S. INTERESTS, STRATEGY, AND POLICY The three legs of any grand strategy toward the DPRK include economic, diplomatic, and military means to accomplish U.S. goals and protect U.S. national interests. This chapter examines the economic side of this triad of strategic policy instruments but also reviews the diplomatic and military aspects of U.S. policy in order to provide a policy context.

U.S. Interests, Goals, and Strategy The DPRK threatens several U.S. national interests. It threatens U.S. security through its development and potential proliferation of nuclear weapons as well as other weapons of mass

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destruction. North Korea’s missile delivery systems currently can reach South Korea and Japan, and it is reportedly developing a missile (Taep’odong 2) that can reach the continental United States. [138] Its conventional forces are concentrated along the demilitarized zone within striking distance of South Korean population centers and U.S. forces. North Korea’s dictatorial, communist, and oppressive regime headed by Kim Jong-il runs counter to U.S. values of freedom, liberty, human rights, democracy, and economic choice. The national security strategy of the United States touches on North Korea mainly through the following broadly stated goals: (1) to prevent enemies from threatening the United States, allies, and friends with weapons of mass destruction; (2) to strengthen alliances to defeat global terrorism and to work to prevent attacks against the United States or friendly countries; (3) to work with others to defuse regional conflicts; (4) to ignite a new era of global economic growth through free markets and trade; and (5) to champion aspirations for human dignity. [139] As applied to the DPRK, the immediate U.S. goals include (1) to halt or eliminate North Korea’s development of nuclear or other weapons of mass destruction; (2) to prevent/halt proliferation of weapons of mass destruction, particularly to terrorist groups; (3) to curtail illegal and questionable activities by North Korea to include illicit sales of missiles, [140] dealing in illegal drugs, and counterfeiting of currency; (3) to reduce the threat of war on the Korean peninsula; (4) to ensure that North Korea does not participate in international terrorist activity; (5) to induce economic, political, and societal change in the country that could bring about favorable changes in the Kim regime, in governance, in the standard of living of its people, and in attitudes toward the United States; and (6) to enhance the security of South Korea and Japan with respect to the DPRK. Conventional wisdom with respect to North Korea includes the following assumptions: (1) without stringent monitoring mechanisms, Pyongyang probably will cheat on any agreement; (2) North Korea regularly engages in illicit activity and may take actions opposed to normally accepted international law or standards of national behavior; (3) economic privation in North Korea mainly affects the population outside of the political and military elite, particularly in the countryside; (4) popular sentiment opposing the current regime, although reportedly on the rise, appears weak or suppressed sufficiently for Kim Jong-il to remain in power for an indefinite period of time; (5) a U.S. military attack on North Korea would result in an immediate counter-attack on Seoul and other targets in South Korea using existing conventional weaponry that would cause extensive damage; and (6) any North Korean use of nuclear bombs on the United States or its allies would trigger retaliation that likely would destroy Pyongyang, its military installations, and other targets. Other factors to be considered include the following: (1) South Korea has been pursuing a policy of rapproachment and eventual normalization of relations with North Korea, although it maintains considerable distrust and hostility toward the country; (2) among the countries with interest in North Korea, China appears to have the most influence and economic and political interaction, although ties with Russia still are strong, and South Korea has been a major source of economic assistance and trade; (3) Japan would likely provide a large monetary settlement to Pyongyang in return for its years of occupation should a peace settlement be reached; (4) the border between China and North Korea is porous, particularly in the winter when the rivers are frozen and electricity so scarce that few lights operate at night; (5) centrally planned, communist economies, that have been operating for several decades create distortions and consumer dissatisfaction that enable rapid transition to a

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market economy once those economies are liberalized; (6) economic reform and the opening of trade and investment in North Korea would likely induce large increases in production and economic well-being, but most DPRK production facilities are so lacking in new machinery and equipment that major investments would be needed to raise them to world standards; and (7) the level of distrust between the United States and the DPRK is deep and long-standing. Given U.S. interests and goals, it appears that U.S. strategy may include the following: (1) convincing the Pyongyang regime that developing nuclear weapons decreases, not increases, its security; (2) creating tension within the regime over the allocation of resources between nuclear and conventional weapons and between the military and civilian economies; (3) weakening the hold by Pyongyang on the daily lives of its citizens and support of Kim Jong-il by fostering alternative centers of power, facilitating the transition to a market economy, and increasing information flows into the country; (4) depriving the central government of revenues derived from illicit activities; and (5) eliciting greater cooperation from China and Russia to induce them to apply more pressure on Pyongyang to make suitable concessions and carry through on commitments deriving from the Six-Party Talks. An economic strategy would be to generate interests in and dependency on international trade, investment, and greater interaction with the outside world that could weaken the hold by Pyongyang on the daily lives of citizens and bring the country more into the globalized world. Such economic liberalization also could reduce pressures on North Korea to engage in illicit trade in order to cover its trade deficit and diminish the need for Pyongyang to saber rattle in order to divert attention from its domestic problems. Major U.S. policy options, given the above interests, goals, assumptions, and strategies with respect to the DPRK, include the following.

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Continue current policies of negotiations with the promise of lifting sanctions as DPRK denuclearization progresses under the Six-Party process. Intensify negative pressures on the DPRK (tighten economic and financial sanctions, restrict trade between North Korea and countries such as China, Japan, South Korea, and Europe, and discourage foreign investment in the DPRK). Increase engagement to include positive incentives for reform over the long term (loosen sanctions, encourage reforms, facilitate foreign investment, promote trade, and allow North Korea to join the International Monetary Fund and Asian Development Bank). Combine policy options into a package of incentives.

Current U.S. Policy Current U.S. policy with respect to the DPRK includes (1) diplomatic engagement through the Six-Party Talks and related bilateral meetings; (2) nonproliferation efforts, including the Proliferation Security Initiative; (3) international efforts to counter trafficking by North Korea in illegal drugs, counterfeit currency, or other contraband; (4) maintenance of U.S. military forces in South Korea, Japan, and elsewhere in the Pacific as a credible deterrent against North Korean aggression; (5) economic sanctions and diplomatic isolation; and (6) keeping North Korea from joining international financial institutions.

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As the Bush Administration nears a close, it has shown a new willingness to negotiate directly with the DPRK, although it maintains the umbrella of the Six-Party Talks. The February 13, 2007, Six-Party Agreement includes a provision that North Korea is to freeze its nuclear installations at Yongbyon and invite back the International Atomic Energy Agency to monitor the freeze. North Korea also is to discuss with the other six parties “a list of all its nuclear programs, including plutonium extracted from used fuel rods” from the five megawatt reactor (which North Korea claims to have reprocessed into nuclear weapons-grade plutonium). In exchange, South Korea is to provide financing for 50,000 tons of heavy oil to be shipped to the North. The DPRK and the United States also are to start talks “aimed at resolving bilateral issues and moving toward full diplomatic relations” and the United States was to settle the Banco Delta Asia issue. Under the Agreement, North Korea and Japan also were to “start bilateral talks” toward normalization of relations on the basis of settlement of “outstanding issues of concern” (which Japan interprets as requiring a settlement of the issue of North Korea’s kidnapping of Japanese citizens). The February 2007 Agreement represented a clear change in strategy by the United States and other parties to the talks. For the first time, the Banco Delta Asia action was linked by the United States to the Six-Party Talks and nuclear issues. In essence, the United States agreed to see that the Banco Delta issue was settled before Pyongyang would have to take action to invite International Atomic Energy Agency inspectors back into the country and to shut down its nuclear plant. For the DPRK, this meant that the $25 million in frozen funds from Banco Delta accounts would be released first. This was done. The Agreement also implied that a strategy of regime change appeared to be off the table. The question now is whether the DPRK will live up to its commitments under the Agreement and what leverage the United States, China, and other participants have to ensure Pyongyang’s compliance. As a result of the February 2007 Six-Party Agreement, the United States has begun providing fuel and food aid and has held out the prospect of eventual normalization of relations with the DPRK in response to specific disclosure and other actions by Pyongyang in regard to its nuclear program. [141] On June 26, 2008, President Bush announced the lifting of the application of the Trading with the Enemy Act (TWEA) with respect to the DPRK and notified Congress of his intent to rescind North Korea’s designation as a State Sponsor of Terrorism. [142] According to the State Department, these actions were taken following the DPRK’s submission of a declaration of its nuclear programs as agreed to under the Six Party Talks. The earliest date (August 11, 2008) for the State Sponsor of Terrorism recision has passed. The Secretary of State reportedly is waiting for more complete verification on the part of the DPRK before proceeding. What is evident from the experience of the past seven years is that Pyongyang’s stalling and the United States’ refusal to negotiate bilaterally (even under the umbrella of the SixParty Talks) provided time for Pyongyang to continue to pursue its nuclear program. Given North Korea’s nuclear test in 2006, it is now obvious that the DPRK actually had created a nuclear device and may still have as many as five or six still in its arsenal. [143] North Korea claims that the reasons for its nuclear program are to deter an attack by the United States and to use the bombs if South Korea starts a war or to devastate Japan in order to prevent the United States from participating in such a war. [144] The nuclear program also enables it to gain international prestige, to exercise a degree of hegemony over South Korea, and to extract economic assistance from other countries. Pyongyang is unlikely to abandon this nuclear program without significant changes to the underlying reasons for the program’s

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existence. Its fear of being attacked had been exacerbated by its inclusion in the “axis of evil,” the Bush doctrine of preemptive strikes, and the U.S.-led invasion of Iraq. [145] Some also consider Pyongyang’s nuclear program to be a bargaining chip to be traded for economic assistance and to gain international recognition. What also can be said about U.S. policy is the renewed willingness to negotiate bilaterally under the Six-Party process, the Banco Delta Asia action, poor economic conditions and crop harvests in the DPRK, and pressures by China, South Korea, and Japan have brought some apparent progress in situation with North Korea. Precisely what Pyongyang’s intentions are is still murky, but it is clear that the DPRK is now placing a higher priority on food supply and economics in policymaking. After North Korea’s 2006 nuclear test, moreover, it became evident that even China opposed the path Pyongyang was taking. Following the nuclear test, the United States took the issue to the United Nations. The resulting UN Security Council Resolution 1718 (October 14, 2006), called on North Korea to abandon its nuclear and missile programs and imposed several sanctions. The resolution imposed an arms embargo on North Korea, banned trade in materials related to ballistic missiles or weapons of mass destruction, and barred exports of luxury goods to the DPRK. It also froze funds and other financial assets owned by people connected with North Korea’s unconventional weapons program and banned travel by such people. China and Russia supported this resolution. Japan responded by curtailing imports from and travel to North Korea, banned North Korean ships from entering its ports, and prohibited exports of 24 luxury products to the DPRK. It appears, however, that despite deep privation and negative growth during the mid1990s, economic sanctions had little effect on Pyongyang’s behavior in ways that would achieve U.S. ends. The ruling elite and military have first priority on scarce food and other supplies. The Kim regime allots economic privileges to its insiders. Peasants may starve, but ranking communist party members live in a separate world of relative luxury. [146] The poor economic conditions also do not appear to have materially undermined the Kim regime. Experts consider internal dissident forces too weak and Kim’s control over his military too strong for a domestic coup to occur. [147] Pyongyang has taken halting steps toward opening its economy to international investment and has allowed more private markets, but these are similar to policies nearly all centrally planned economies are taking, and China and Russia have been recommending that North Korea adopt them also. Irrespective of whether the U.S. economic sanctions worsened North Korea’s economy, the poor state of the North Korea’s agriculture and industries has indirectly affected U.S. national interests. It has necessitated humanitarian aid and has generated a deficit in trade that Pyongyang has attempted to fill by dealing in illegal drugs and missiles. Food scarcity also has pushed numerous refugees into China and South Korea. In terms of non-proliferation, the Proliferation Security Initiative now has more than 60 governments participating (including Russia). Although aimed at stopping trade in weapons of mass destruction and their components, the prospect of ships being inspected complicates North Korean efforts to smuggle illicit weapons, drugs, and counterfeit currency. [148]

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The Six-Party Talks Current engagement with North Korea is being conducted under the Six-Party Talks plus bilateral discussions between Pyongyang and other nations. The Talks include the United States, DPRK, China, Japan, South Korea, and Russia. This brings all major players to the table, exposes China and Russia to North Korean obstinacy, enables China and Russia to exert pressure on Pyongyang, and includes Japan and South Korea who have direct interests in a peaceful resolution of the problem and are likely to be the major providers of aid to the DPRK. (For discussion of the talks, see CRS Report RL33590, North Korea’s Nuclear Weapons Development and Diplomacy, and CRS Report RL33567, Korea-U.S. Relations: Issues for Congress, both by Larry Niksch.) Table 11 summarizes the major negotiating priorities and bargaining chips for each side in the Six-Party Talks. Any policy package would have to address at least some of the priorities of each nation. The highest priority for the United States, Japan, and Russia reportedly is for North Korea to scrap its nuclear weapons program in a manner that is verifiable. Japan also is concerned about North Korean missiles (which have been fired over Japan) and a full accounting for the abduction of its citizens. In addition, the United States, China, Russia, and Japan seek a stop to weapons proliferation, while Japan also seeks normalization of relations with the DPRK, and South Korea seeks a framework for rapprochement, possible reunification with the North, less military tension along the demilitarized zone (DMZ), and access to cheap labor and markets in the North.

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Table 11. Major Priorities and Bargaining Chips by Country in the Six-Party Talks with North Korea Country United States North Korea South Korea Japan

China

Russia

Priority

Bargaining Chips

Complete, verifiable, and irrevocable scrapping of nuclear weapons; non- proliferation; human rights; peace treaty Guarantee security and regime; establish diplomatic relations with the U.S. and Japan; reunification with South Korea on own terms; peace treaty Set framework for peaceful resolution and prosperity on the peninsula; reunification; access to North Korean labor and markets, non-nuclear Korean peninsula; human rights; peace treaty Scrap nuclear weapons program and missiles; resolve abductions of Japanese citizens Non-nuclear Korean peninsula, non- proliferation; continued influence on peninsula, weakening U.S. alliance with Japan and with South Korea; peace treaty Scrap N. Korean nuclear weapons; nonproliferation; promote stability in N.E. Asia

Guarantee security and regime, economic aid, normalized diplomatic and trade relations Scrap nuclear weapons and missiles, reduce tensions along DMZ Economic support, energy, business investment Normalized diplomatic relations, economic support Economic support, alliance support Buffer diplomacy, energy assistance, business investment

Source: Adapted from: The Seoul Economic Daily, 22 August 2003, cited in Hong Soon-Jick, “North Korean Nuclear Crisis: Prospects and Policy Directions,” East Asian Review, Vol. 15, No. 3, Autumn 2003, p. 31. North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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Pyongyang’s primary goals appear to include (1) preservation of communist rule under Kim Jong-il, (2) obtaining a security guarantee that would preclude a possible preemptive attack by the United States or its allies, (4) maintaining key elements of its nuclear weapons programs, (3) establishing diplomatic relations with the United States and Japan, (4) reunification with the South on its own terms, and (5) obtaining economic assistance for its ailing economy while maintaining its juche philosophy. A risk of any policy package, such as the February 13, 2007 Agreement, is that North Korea might not scrap its nuclear program once energy and other aid starts to flow again, or the economy recovers sufficiently to become more self sustaining. Some surmise that the DPRK military is still resisting a complete shut-down and dismantling of the DPRK’s nuclear program. If Pyongyang does not follow through on the Agreement, tensions could escalate, and punitive measures could be considered. [149] Absent a settlement of the nuclear issue, the world may have to learn to live with a nuclear-armed North Korea much as it has learned to live with a nuclear-armed Pakistan and India. Japan and South Korea would have to consider whether to develop nuclear capability themselves. Another risk of providing a policy package that includes real incentives could be that the United States would be perceived as being blackmailed and giving away too much to a dictator who regularly violates the human rights of his people. The costs of a diplomatic solution to tensions with North Korea, however, seem relatively small compared with a nuclear arms race in Northeast Asia, the possibility of nuclear proliferation, or a preemptive military action. Opening trade and diplomatic relations would be of relatively low cost for the United States, but this would require resolution of certain issues. It also appears that in the final year of its second term, the Bush Administration is seeking a diplomatic success story with the DPRK. Negotiations with Pyongyang bilaterally and under the Six-Party Talks have proceeded in earnest. Humanitarian aid has been resumed. It is now up to Pyongyang to follow through on its commitments under the Six-Party Agreement, particularly to disclose all of its nuclear programs.

Possible Economic Incentives The February 2007 Six-Party Agreement includes various economic incentives for the DPRK. The short-term incentives included providing fuel and releasing the Banco Delta funds, removing the DPRK from the U.S. terrorist list and recinding its designation as a State Sponsor of Terrorism, while long-term incentives include normalization of economic relations, and allowing North Korea to join multilateral financial institutions, such as the Asian Development Bank and International Monetary Fund. The list of potential economic incentives, include the following: Normalizing Diplomatic Relations. Normalization of diplomatic relations with the DPRK would apply to the United States, Japan, and South Korea. North Korea already has diplomatic relations with China, Russia, and the European Union (including an embassy in London). Associated with normalizing relations would be a peace treaty formally ending the Korean War. For Japan, the DPRK would have to resolve certain issues, including a full accounting of the status of kidnapped Japanese citizens, North Korea’s missile firings over Japan, and incursions by suspected DPRK espionage and drug-running ships into Japanese

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waters. Upon conclusion of these normalization talks, Japan is likely to offer $5 billion to $10 billion to North Korea in compensation for its occupation. [150] Normalizing diplomatic relations allows countries to communicate with each other in a more direct fashion, enables diplomats to gather information directly, and provides more interaction on a personal level. Normalized relations can help to overcome the Pyongyang propaganda machine both within the DPRK and on the world stage. Normalization, however, can imply that the United States is willing to tolerate conditions in North Korea. This may be unacceptable to some. Absent normalized relations, Washington could seek a relationship similar to that with Cuba. Even without diplomatic ties, the U.S. mission in Havana is attached to that of Switzerland and maintains a staff similar in size to a regular embassy. (North Korea has been a member of the United Nations since 1991 and has representatives in New York.) Japan has initiated talks with Pyongyang that could lead to normalized relations, and South Korea has been seeking diplomatic ties and possibly some form of reunification in the future. In 2007, bilateral talks between Japan and the DPRK on normalization were stymied by the abduction issue, but they have resumed in 2008. Negotiating a Trade Agreement. After normalization, the United States could negotiate a trade agreement with the DPRK that would cover goods, services, and investments and could be modeled after the 2001 bilateral trade agreement concluded between the United States and the Socialist Republic of Vietnam. [151] Upon implementation of the trade agreement, each country would accord the other normal trade relations (most favored nation) status. The immediate effect would be to allow North Korean exports to the United States to enter at the lower rates of duty accorded to nearly all other nations of the world. The trade agreement also could cover investment and other U.S. interests. While the DPRK’s market currently is small, eventually it could re-industrialize and become a larger economic player in the region. Liberalization of North Korean trade and investment relations, moreover, can work through the economy in the same way that it did in China and Russia by exposing the public to the benefits of increased wealth. The major negative to establishing trade with North Korea is that, unless it is part of a larger package that includes other concessions, the United States could be viewed as exchanging an important bargaining chip for minimal gain. Easing U.S. Sanctions. The United States could ease economic sanctions on North Korea if the country resolves the issues that caused the sanctions to be imposed initially. Since North Korea’s other trading partners have more liberal trade with North Korea, it is mainly American companies and traders that are impacted by the sanctions. Pyongyang can spend its available foreign exchange in any of a number of world markets — in China, Russia, South Korea, Europe, or elsewhere. Moreover, as North Korea opens its economy, U.S. businesses would be able to decide whether or not to invest there based on their own economic interests and not because they are hindered from doing so by U.S. law. Allowing the DPRK to Join International Financial Institutions (IFIs). The United States could stop blocking the DPRK from joining the major IFIs, particularly the Asian Development Bank, World Bank, and International Monetary Fund. [152] Pyongyang is particularly interested in joining the Asian Development Bank, but IFI procedures require membership first in the International Monetary Fund. The IMF requires certain economic data which the World Bank or Asian Development Bank needs to evaluate projects and loan requests. Membership in IFIs requires that a country establish data gathering and reporting mechanisms as well as open their country to visits, surveys, or assessments by the IFI. As an

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incentive, a special fund could be set up in the World Bank or Asian Development Bank to assist North Korea in its economic transition. This fund could be financed by Japan or South Korea in conjunction with their normalization of relations with the DPRK. Removing the DPRK from the Terrorism List. The 45-day period for notification to Congress of the U.S. intent to rescind the listing of the DPRK as a State Sponsor of Terrorism passed on August 11, 2008. If the President rescinds this listing, North Korea would become eligible for U.S. foreign aid, loans from the U.S. Export-Import Bank, loans from any international financial organizations in which it has membership, and an easing of U.S. export control requirements. [153] Fuel and Food Aid. The Bush administration resumed shipping fuel and food aid on a humanitarian basis to the DPRK. South Korea also has resumed shipments of fuel, but it has insisted that food and fertilizer aid be sent only if requested by North Korea. Products from the Kaesong Industrial Complex. When South Korea was negotiating the proposed Korea-U.S. Free Trade Agreement (signed but not yet approved by Congress), they asked that products from the Kaesong Industrial Complex in North Korea be included under the FTA and be accorded duty-free entry into the United States. The resulting FTA language, however, does not provide for duty-free entry into the United States for products made in Kaesong. Annex 22-B to the proposed FTA, however, does provide for a Committee on Outward Processing Zones (OPZ) to be formed and to designate zones (such as the Kaesong Industrial Complex) to receive preferential treatment under the FTA. Such a designation apparently would require legislative approval by both countries.

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LEGISLATIVE ACTION Major congressional action with respect to security and human rights aspects of U.S .DPRK relations is included in CRS Report RL33567, Korea-U.S. Relations: Issues for Congress, by Larry A. Niksch; North Korea’s Nuclear Weapons: Latest Developments, by Mary Beth Nikitin; and North Korea: Terrorism List Removal? by Larry A. Niksch.

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[4]

For details on the Six-Party Talks, see CRS Report RL33590, North Korea’s Nuclear Weapons Program, and CRS Report RL33567, Korea-U.S. Relations: Issues for Congress, both by Larry A. Niksch. For information on U.S. aid to the DPRK, see CRS Report RS2 1834, U.S. Assistance to North Korea, by Mark E. Manyin and Mary Beth Nikitin. U.S. Department of State. “North Korea: Presidential Action on State Sponsor of Terrorism (SST) and the Trading with the Enemy Act (TWEA).” Fact Sheet, June 26, 2008. This began the clock on a 45-day period of prior notification of Congress (ending August 11) for delisting North Korea as a state sponsor of terrorism. Kellerhals, Merle D., Jr. “North Korea Must Provide a Verification Plan, U.S. Officials Say.” U.S. Department of State. Available at [http://www.america.gov].

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Dick K. Nanto and Emma Chanlett-Avery Global Insight (subscription econometric forecasting service). “North Korea” (updated July 23, 2008). Full text of North Korea’s 2008 New Year’s joint editorial, BBC Monitoring Asia Pacific. London. January 2, 2008. p. 1. Kim Ung-ho. Main Attack Front in Building a Powerful State. Rodong Sinmun, January 19, 2008. Translated Open Source Center, document # KPP200801 19029003. See CRS Report RL33590, North Korea’s Nuclear Weapons Program, and CRS Report RL33567, Korea-U.S. Relations: Issues for Congress, both by Larry A. Niksch. U.N. World Food Program. DPRK Survey Confirms Deepening Hunger for Millions. New-Press Release, July 30, 2008. For an in-depth study of the North Korean economy, see Marcus C. Noland, Avoiding the Apocalypse: The Future of the Two Koreas, Institute for International Economics, 2000. In January 2008, a program for recovery assistance for vulnerable groups in the DPRK lasting from April 2006 to May 2008 had appealed for $102,234,076 and had received 56% of the income against that appeal. The largest donors were South Korea, Russia, Switzerland, Germany, and Australia. World Food Program. Resourcing Update, Project No. 10488.0, January 15, 2008. Data from Global Insight. Subscription database. Global Insight. Korea, North: Economic Trends: Economic Growth: Background. March 4, 2003. Chao, Julie. Economic Devastation Visible in Pyongyang. Korea Is like a Land Time Forgot, and Crisis with U.S. Isn’t Helping. The Austin American Statesman, May 3, 2003. P. A17. Watts, Jonathan. Where Are You, Beloved General? In a Land Where Paranoia, Propaganda, and Poverty Are the Norm, an Albino Raccoon Reassures North Koreans That Good Times Are Ahead. Mother Jones, Vol. 28, No. 3, May 1, 2003. p. 52. Food and Agriculture Organization. Food Security Statistics. Online at [http://www.fao.org/statistics/faostat/foodsecurity/Files/NumberUndernourishment_en.xl s]. U.N. World Food Programme. WFP Set to Resume Operations in North Korea, Press Release, May 10, 2006. Kim, Hyung-jin. North Korea Winter Threatens Food Supply, Associated Press, Seoul, March 3, 2008. Stephan Haggard and Marcus Noland. Famine in North Korea, Markets, Aid, and Reform (New York: Columbia University Press, 2007). P. 3. Georgy Toloraya. The Economic Future of North Korea: Will the Market Rule? Korea Economic Institute, Academic Paper Series, Volume 2. No 10, December 2007. A recent World Bank Study indicates that China’s PPP values should be reduced by about 40% for 2005 and subsequent years. World Bank. 2005 International Comparison Program, Preliminary Results, December 17, 2007. PPI figures are from the World Bank. World Development Indicators. Global Insight (subscription service), “North Korea, Economic Growth: Outlook,” updated July 23, 2008. Global Insight (subscription econometric forecasting service), “North Korea.” (Updated July 23, 2008).

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[25] South Korea. Ministry of Unification. North Korea Today, August 14, 2001 (Internet edition). [26] UN World Food Programme. World Hunger — Korea (DPR). Available at [http://www.wfp.org/country_brief/indexcountry.asp?country=408]. [27] Desperate Straits, Special Report (1). The Economist, May 3, 2003 (U.S. Edition). [28] Class Divergence on the Rise as Market Economics Spread in DPRK, Institute for Far Eastern Studies, North Korea Brief. September 21, 2007. Cited in NAPSNet, September 21, 2007. [29] Analysis team of the Daily NK. Lee Myung-Bak’s Administration: A Breakthrough in North Korea’s Opening, The Daily NK (Internet edition), December 12, 2007. [30] See, for example: Natural Wonders Prove Kim Jong-il’ s Divinity: North Korean Media, Agence France Presse. May 3, 2003. [31] British Broadcasting Corporation. N. Korea: Paper Supports Leader Kim Jong-il’s Military-first Ideology, April 26, 2003. Reported by BBC from KNCA News Agency (Pyongyang). [32] Toyama, Shigeki. Expert on Kim Chong-il’ s “Military-First Politics,” South-North Issues, Tokyo Gunji Kenkyu (in Japanese, translated by FBIS), August 1, 2002. P. 108117. [33] Nam, Woon-Suk. Guidelines of Economic Policies. KOTRA, January 9, 2001. [34] Gause, Ken E. North Korean Civil-military Trends: Military-first Politics to a Point. Army War College, September 2006. P. [35] The International Institute for Strategic Studies. The Military Balance, 2006. London, Routledge, 2006. P. 276. Also, The Military Balance, 2007, p. 357. Note: in the 2008, edition of the Military Balance, the DPRK’s defense budget is listed as “definitive data not available.” [36] “DPRK Allocates 15.9 Percent of State Spending for Military.” People’s Daily Online, April 12, 2005. [37] Asia: The deal that wasn’t; North Korea. The Economist. London: September 24, 2005. p. 81. [38] For a description of decisionmaking in the DPRK, see Former DPRK Diplomat’s Book on DPRK National Strategy, Inner Circle Politics (2). Open Source Center document KPP200709 18037001. August 20, 2007. (Translated by Open Source Center from Korean) [39] Current experiments in agriculture are directed from Pyongyang with seven major tasks that include replacing chemical fertilizers with organic and microbial ones. See Yonhap News. N. Korea Eyes China as a Model for Development. May 11, 2004. [40] See CRS Report RL34093, The Kaesong North-South Korean Industrial Complex, by Dick K. Nanto and Mark E. Manyin. [41] Former North Korean Professor Interviewed on Pyongyang’s Economic Reform. Choson Ilbo, April 14, 2003. Translated and reported by BBC Worldwide Monitoring, April 18, 2003. [42] Global Trade Atlas using Chinese data. [43] Shanghai Northeast Asia Investment & Consultancy Company. A Study Report on the DPRK Mineral Resources. Shanghai Northeast Asian Forum website, in Chinese, December 7, 2007. Reported by Open Source Center, document #KPP20080123032002.

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[44] Pak, Yo’n. Basic Spirit That Runs Consistently in This Year’s Joint Editorial, Rodong Sinmun, in Korean, January 4, 2008. Translated by Open Source Center, document #KPP20080 104053004. [45] Gifford, Rob. North Korea (audio report), NPR Morning Edition, April 30, 2003. [46] UN Food and Agriculture Organization. Democratic People’s Republic of Korea text. October 1, 2007. Available under country profiles on UN FAO website. [http://www.fao.org]. [47] N. Korea more and more open to U.N. aid: rapporteur. Yonhap, (in English), January 18, 2008. [48] For a history of DPRK reforms in light of interaction with China, see Mika Marumoto. North Korea and the China Model: The Switch from Hostility to Acquiescence . Korea Economic Institute. Academic Paper Series, Vol. 2, No. 5, May 2007. [49] The DPRK Learns Vietnam, Kookmin Ilbo, Seoul, October 25, 2007. CanKor Report #296. DPRK-Vietnamese Relations, November 1, 2007. Jung Sung-ki.. Kim Jong-il Interested in Vietnamese-style Reform Policy, Korea Times. October 28, 2007. [50] Hong, Ihk-pyo. A Shift Toward Capitalism? Recent Economic Reforms in North Korea. East Asia Review, vol. 14, Winter 2002. Pp. 93-106. [51] In January 2007, the communist party’s central committee reportedly asked families to “voluntarily” offer food to the army, since the food shortage in the people’s army was severe. Yang, Jung A. Citizens Exploited as the Nation Cannot Produce its Own Income. The Daily NK (Internet edition), January 24, 2007. [52] Hong, Ihk-pyo, A Shift Toward Capitalism?, East Asia Review, Winter 2002. Pp. 96. [53] Jeong, Chang-hyun. Capitalist Experiments Seen Expanding into DPRK. Joong Ang Ilbo, October 19, 2003. Translated in CanKor #160 by Cananda-DPR Korea e-clipping Service, April 13, 2004. [54] Lintner, Bertil. North Korea, Shop Till You Drop, Far Eastern Economic Review, May 13, 2004. P. 14-19. [55] Pritchard, Charles L. Siegfried S. Hecker, and Robert Carlin. News Conference: Update from Pyongyang, sponsored by the Korea Economic Institute, held at the National Press Club, Washington, DC, November 15, 2006. [56] Institute for Far Eastern Studies. State of the Market in the DPRK, North Korea Brief No. 07-12-5-1. Posted December 11, 2007. [57] Han Young Jin. Even the National Security Agency Participates in the Control of the Jangmadang. The Daily NK (electronic version). December 26, 2007. [58] Good Friends: Centre for Peace, Human Rights and Refugees, North Korea Today, No. 103, December 2007. [59] KOTRA, North Korea, Status of Induced Foreign Capital. [60] K. Park. A Report on Visit to Rajin-Seonbong Region, January 4, 2001. KOTRA. [61] Orascom also reportedly is investing $115 million in a North Korean cement manufacturer for a 50% stake in the firm. [62] Arab Firm Earns First Mobile License In DPRK. Yonhap, January 30, 2008. [63] Global Trade Atlas using Chinese data. [64] Shanghai Northeast Asia Investment & Consultancy Company. A Study Report on the DPRK Mineral Resources. Shanghai Northeast Asian Forum website, in Chinese, December 7, 2007. Reported by Open Source Center, document #KPP20080123032002.

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[65] Institute For Far Eastern Studies. Interest Revived in the Sinuiju Special Administrative Region. Reported by Nautilus Institute, Policy Forum Online 06-25A, March 30, 2006. [66] For details, see CRS Report RL34093, The Kaesong North-South Korean Industrial Complex, by Dick K. Nanto and Mark E. Manyin. [67] Republic of Korea. Ministry of Unification. Key Statistics for Gaeseong Industrial Complex. September 30, 2007. [68] Republic of Korea. Ministry of Unification. Gaeseong Industrial Complex Project — Status and Tasks, June 2005. [69] South Korea to Continue “Utmost Efforts” for Inter-Korean complex — Minister. Yonhap News Agency. Reported by BBC Monitoring Asia Pacific. London, December 8, 2006. [70] Republic of Korea. Ministry of Unification. Key Statistics for Gaeseong Industrial Complex. September 30, 2007. [71] Rights Body Criticizes South Korea Over Refugee Protection, Inter-Korean Complex. Yonhap News Agency, Seoul. Reported by BBC Monitoring Asia Pacific. London, January 12, 2007. [72] South Korea Considers Expanding Joint Industrial Complex in North. Yonhap News Agency, Seoul. Reported by BBC Monitoring Asia Pacific. London, July 26, 2006. Ministry of Unification (South Korea). The Gaesong Industrial Complex. Status of North Korean Workers. November 14, 2006. Online at [http://www.unikorea.go.kr/ english/EUP/ EUP020 1R.j sp]. [73] CRS Report RL33435, The Proposed South Korea-U.S. Free Trade Agreement (KORUS FTA), by William H. Cooper and Mark E. Manyin. [74] See Eberstadt, Nicholas. The North Korean Economy, Between Crisis and Catastrophe (New Brunswick, NJ, Transaction Publishers, 2007). p. 227. [75] Embassy of the People’s Republic of China in the Democratic People’s Republic of Korea. A brief account of the economic and trade relations between China and the DPRK. Online at [http://kp.china-embassy.org/eng/zcgx/jmwl/t306852.htm]. [76] Shanghai Northeast Asia Investment & Consultancy Company. A Study Report on the DPRK Mineral Resources. Shanghai Northeast Asian Forum website, in Chinese, December 7, 2007. Reported by Open Source Center, document #KPP20080123032002. [77] International Monetary Fund. Direction of Trade Statistics. It should be noted that countries occasionally misreport trade with South Korea as trade with the DPRK. [78] (South) Korea Trade-Investment Promotion Agency. [79] For an examination of North Koreas external relations, see Stephan Haggard and Marcus Noland, North Korea’s External Economic Relations, Peterson Institute for International Economics Working Paper No. WP07-7, August 2007. [80] Data are from Joint BIS-IMF-OECD-WB External Debt Hub at [http://devdata.worldbank.org/sdmx/jedh/jedh_home.html]. [81] Gittings, Danny. Kim Can’t Kill the Free Market. The Wall Street Journal (Brussels), May 30, 2003. P. A11. [82] DPRK Holds Annual Lottery for Government Bond Repayments. Institute for Far Eastern Studies, NK Brief No. 08-1-3-2, January 3, 2008. [83] United Nations Conference on Trade and Development. World Investment Report, 2007. New York, United Nations, FDISTAT database showing Major FDI Indicatiors.

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[84] Seo, Soo-min. Questions Linger Despite President’s Statement. Korea Times, February 14, 2003. Dorgan, Michael. Secret Payment to North Korea Disclosed, Knight Ridder Newspapers, January 30, 2003. [85] U.S. to Pay N. Korea for MIA Search. Associated Press. July 15, 2003. For details on U.S. assistance to North Korea, see CRS Report RS2 1834, U.S. Assistance to North Korea: Fact Sheet, by Mark E. Manyin. [86] Republic of Korea, Ministry of Unification. Inter-Korean Relations on the Occasion of the 4th Anniversary of the June 15 Joint Declaration. June 18, 2004. p. 9. [87] CRS Report RS2 1834, U.S. Assistance to North Korea: Fact Sheet, by Mark E. Manyin. [88] For details, see CRS Report RL32 137, North Korean Supporters in Japan: Issues for U.S. Policy, by Emma Chanlett-Avery. DPRK workers also are countries such as those in the Middle East, China, and Russia. [89] Melons Used to Smuggle Cash to N Korea. Japan Today News (Online), January 1, 2003. [90] Remittance Law Reinterpreted Cash Transfers to Pyongyang May Be Suspended as Deterrent. The Daily Yomiuri (Tokyo), May 19, 2003. p. 1. [91] Japanese Finance Minister Says “At Least” 34m US Dollars Sent to North Korea. Financial Times Information, Global News Wire — Asia Africa Intelligence Wire. June 6, 2003. [92] See, for example, Masaki, Hisane. N Korea’s Missiles Met by Japanese Sanctions, Asia Times Online, July 6, 2006. [93] For details, see CRS Report RL33885, North Korean Crime-for-Profit Activities, by Liana Sun Wyler and Dick K. Nanto. [94] Asano, Yoshiharu. N. Korea Missile Exports Earned 580 Mil. Dollars in ‘01. Daily Yomiuri, May 13, 2003. [95] Solomon, Jay. U.S. Debates North Korean Exports, Asian Wall Street Journal, May 5, 2003. p. A1. [96] Testimony of John R. Bolton, Under Secretary for Arms Control and International Security, U.S. Department of State. U.S. House Committee on International Relations, June 4, 2003. [97] Asano, Yoshiharu. N. Korea Missile Exports Earned 580 Mil. Dollars in ‘01. Daily Yomiuri, May 13, 2003. Pearson, Brendan. Illicit Boost for N Korea Economy. Australian Financial Review, May 14, 2003. p. 12. [98] CRS Report RL33696, Conventional Arms Transfers to Developing Nations, 1998-2005, by Richard F. Grimmett. p. 53. This figure is rounded to the nearest $100 million. [99] Paddock, Richard C. and Barbara Demick. N. Korea’s Growing Drug Trade Seen in Botched Heroin Delivery, Washington Post, May 21, 2003. Also see CRS Report RL33885, North Korean Crime-for-Profit Activities, by Liana Sun Wyler and Dick K. Nanto. [100] Kim, Ah-young, Halt North Korea’s Drug Habit; a Narcotic State, International Herald Tribune, June 18, 2003. p. 8. [101] U.S. Department of State. International Narcotics Control Strategy Report, 2007. March 2007. [102] Struck, Doug. Heroin Trail Leads to North Korea. Washington Post Foreign Service, May 12, 2003. p. A01.

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[103] For details, see CRS Report RL33324, North Korean Counterfeiting of U.S. Currency, by Raphael F. Perl and Dick K. Nanto. [104] Choe, Sang-Hun. N. Korea Sees Sanctions Amid Tough Times. Associated Press Online, June 12, 2003. [105] Available at [http://www.whitehouse.gov/news/releases/2005/06/20050629.html]. [106] U.S. Department of the Treasury. Treasury Targets North Korean Entities for Supporting WMD Proliferation. Press Release JS-2984, October 21, 2005. [107] U.S. Department of the Treasury. Treasury Designates Banco Delta Asia as Primary Money Laundering Concern under USA PATRIOT Act. Press Release JS-2720, September 15, 2005. [108] See CRS Report 97-389, Generalized System of Preferences, by William H. Cooper. [109] See CRS Report RL3 1696, North Korea: Economic Sanctions, by Dianne E. Rennack. [110] [http://w3 .access.gpo.gov/bis/ear/ear_data.html] [111] Yoon, Won-sup. US Eased Sanctions on North Korea in 2007, Korea Times, February 12, 2008. [112] Daniel J. Wakin. North Koreans Welcome Symphonic Diplomacy. New York Times, February 27, 2008. p. 1. [113] White House. Office of the Press Secretary. Fact Sheet: 2008 War Funding Request, October 22, 2007. [http://www.whitehouse.gov/news/releases/2007/1 0/print/ 200710227.html] [114] The North Korean Counterterrorism and Nonproliferation Act (H.R. 3650, RosLehtinen, Ileana ) provides for the continuation of restrictions against the government of North Korea (imposed as a result of the DPRK being deemed a supporter of international terrorism) unless the President certifies to Congress that North Korea has met certain benchmarks respecting: (1) missile or nuclear technology transfers; (2) support of terrorist groups and terrorist activities, (3) counterfeiting of U.S. currency, (4) release of South Korean POWs, Japanese journalists, and Kim Donk-Shik; and (5) Bureau 39’s closure. [115] U.S. Bureau of Economic Analysis. U.S. Direct Investment Abroad Detail for Historical- Cost Position and Related Capital and Income Flows, 2001. Survey of Current Business, September 2002, p. 94. [116] Meeting with President of the American Chamber of Commerce and CRS analysts, April 7, 2003, Washington, DC. [117] Koo, Kyung-hee. U.S. Enterprises Participate in Developing the Gaeseong Industrial Complex. KOTRA-North Korea Team. January 30, 2004. Reprinted in KOTRA Bulletin, February 11, 2004. [118] The Six-Party Talks are made up of representatives from the United States, Japan, North Korea, South Korea, Russia, and China. [119] Speech by Minister Jeong Se-hyun on the 34th Anniversary of the Ministry of Unification. Korean Unification Bulletin, No. 53, March 2003. [120] In March 1996, KEPCO was designated the prime contractor for the construction of two 1,000MW light water nuclear reactors in North Korea for KEDO (Korean Peninsula Energy Development Organization). It broke ground near Sinpo in August 1997. By the end of 2001, the project was 16% completed with some 1,200 workers employed. For details on the Agreed Framework, see CRS Report RL33590, North Korea’s Nuclear Weapons Development and Diplomacy, by Larry Niksch. For the

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approval list, see KOTRA, Companies Approved for South-North Korean Economic Cooperation. [121] South Korea to Continue “Utmost Efforts” for Inter-Korean complex — Minister. Yonhap News Agency. Reported by BBC Monitoring Asia Pacific. London, December 8, 2006. [122] Inauguration Speech of President Lee Myung-bak, February 25, 2008. On website of the South Korean Ministry of Foreign Affairs and Trade. [http://www.mofat.go.kr/index.j sp]. [123] Chu, Wan-chung. These Days, North Korea Does not Even Listen to China. Chosun Ilbo, August 7, 2006. Reprinted by BBC Monitoring Asia Pacific, August 10, 2006. [124] Human Rights Watch. China: Protect North Korean Refugees, March 9, 2004. James D. Seymour. China: Background Paper on the Situation of North Koreans in China, A Writenet Report by commissioned by United Nations High Commissioner for Refugees, Protection Information Section, January 2005. [125] Jane’s Information Group, op. cit. [126] See UN Security Council Resolution 1718, October 14, 2006. [127] Kahn, Joseph. China May Press North Koreans. The New York Times, October 20, 2006. P. A1. [128] Average price calculated by World Trade Atlas using Chinese trade statistics. [129] Babson, Bradley O. Towards a Peaceful Resolution with North Korea: Crafting a New International Engagement Framework Paper presented at a conference sponsored by the American Enterprise Institute, Korea Economic Institute, and Korea Institute for International Economic Policy, Washington, DC, February 12-13, 2004. [130] Foley, James. China Steps Up Security on North Korean Border. Jane’s Intelligence Review, November 1, 2003. [131] China Erects Massive Fence on N. Korean Border After Test. World Tribune.com, October 25, 2006. Schafer, Sarah. Threatening the Whole World, on China’s Border with North Korea, Local Villagers Fear the Fallout from Pyongyang’s Nuclear Aspirations, Newsweek, October 12, 2006. (Internet edition). [132] Lee, Chang-hak. China’s Trade with N.K. Via Dandong Exceeds US $200 million. KOTRA, February 21, 2003. [133] CRS Report RL3 1785, Foreign Assistance to North Korea, by Mark Manyin. [134] Lunev, Stanislav. New Era in Russian-North Korean Relations. Newsmax.com, August 23, 2000. [135] Vorontsov, Alexander. Current Russia — North Korea Relations: Challenges and Achievements. The Brookings Institution Center for Northeast Asian Policy Studies, February 2007, 24 p. [136] Ibid. [137] Russia to Forgive Most of N. Korea’s Debt. The Chosun Ilbo (digital version), January 5, 2007. [138] See CRS Report RS21473, North Korean Ballistic Missile Threat to the United States, by Andrew Feickert. [139] The White House. The National Security Strategy of the United States of America. September 2002. [140] See CRS Report RS21473, North Korean Ballistic Missile Threat to the United States, by Steven A. Hildreth.

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[141] For details on the Six-Party Talks, see CRS Report RL33590, North Korea’s Nuclear Weapons Program, and CRS Report RL33567, Korea-U.S. Relations: Issues for Congress, both by Larry A. Niksch. [142] U.S. Department of State. “North Korea: Presidential Action on State Sponsor of Terrorism (SST) and the Trading with the Enemy Act (TWEA).” Fact Sheet, June 26, 2008. This began the clock on a 45-day period of prior notification of Congress (ending August 11) for delisting North Korea as a state sponsor of terrorism. [143] For details, see CRS Report RL34256, North Korea’s Nuclear Weapons: Latest Developments by Mary Beth Nikitin. [144] Jane’s Information Group. Armed Forces, Korea, North. Jane’s Sentinel Security Assessment, March 4, 2003. [145] Laney, James T. and Jason T. Shaplen. “How to Deal With North Korea,” Foreign Affairs, March/April 2003. p. 20-21. [146] BBC Monitoring, Asia Pacific. Former Bodyguard of North Korean Leader Interviewed, October 13, 2003, p. 1. [147] The only significant power base that might challenge the regime is the military. Since Kim Jong-il became Chairman of the National Defence Commission, however, he has promoted 230 generals. Most of the army’s 1,200-strong general officer corps owe their allegiance to him. Jane’s Information Group, “Internal Affairs, Korea, North,” Jane’s Sentinel Security Assessment. June 10, 2003. [148] The White House. Proliferation Security Initiative, Fact Sheet. September 4, 2003. U.S. Department of State. U.S. Notes First Anniversary of Proliferation Security Initiative. Press Release, June 1, 2004. [149] See OPLAN 5026 - Air Strikes. [http://www.globalsecurity.org/military/ops/ [150] See CRS Report RL32161, Japan-North Korea Relations: Selected Issues, by Mark Manyin. [151] The White House, George W. Bush. “Presidential Proclamation: To Implement the Agreement Between the U.S. and Socialist Republic of Vietnam on Trade Relations,” June 1, 2001. [152] For information on requirements to join the International Monetary Fund, see Primorac, Marina. How Does a Country Join the IMF? Finance & Development, June 1991, vol. 28, Issue. 2; pp 34-5. [153] See CRS Report RL33567, Korea-U.S. Relations: Issues for Congress, by Larry A. Niksch.

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In: North Korean Foreign Relations in the Post-Cold War World ISBN 978-1-60692-806-6 Author: Lyman R. Rechter © 2009 Nova Science Publishers, Inc.

Chapter 3

NORTH KOREA’S ABDUCTION OF JAPANESE CITIZENS AND THE SIX-PARTY TALKS ∗

Emma Chanlett-Avery

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ABSTRACT The admission by North Korea in 2002 that it abducted several Japanese nationals — most of them nearly 30 years ago — continues to affect significantly the Six-Party Talks on North Korea’s nuclear weapons program. This chapter provides background information on the abductee issue, summarizes its effect on Japanese politics, analyzes its impact on U.S.-Japan relations, and assesses its regional implications. Congress has indicated considerable interest in the abductions issue. The North Korean Human Rights Act (P.L. 108-333) includes a sense of the Congress that non-humanitarian aid be contingent on North Korean progress in accounting for the Japanese abductees. A House hearing in April 2006 focused on North Korea’s abductions of foreign citizens, with testimony from former abductees and their relatives. Some Members of Congress have sponsored legislation (S.Res. 399 and H.R. 3650) that support Japan’s call for settlement of the abductions controversy before North Korea is removed from the U.S. state sponsors of terrorism list. The forcible seizure of Japanese citizens by North Korean agents in the 1970s and 1980s continues to be a pivotal issue in the ongoing Six-Party Talks on North Korea’s nuclear weapons program. Tokyo’s participation in the international forum is dominated by its efforts to achieve progress on the abduction issue. While the United States is now aggressively pursuing a deal that provides energy and economic assistance to North Korea in exchange for the dismantlement of its nuclear weapons program, Japan has refused to contribute aid without satisfactory progress on the kidnappings. This had led to Japan’s relative isolation in the multilateral talks, although better relations between new leaders in Japan and South Korea may provide some flexibility to end the impasse. U.S. interest in the abductions issue is driven by its needs for Japan’s diplomatic and economic assistance in the negotiations, as well as concerns that friction in the U.S.∗ Excerpted from CRS Report RS22845, dated March 19, 2008. North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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Emma Chanlett-Avery Japan relationship will damage one of the United States’ most important alliances in the world. [1] U.S. negotiators maintain that they strongly support Japan’s position on the abductees, but also indicate that the issue will not block a nuclear deal. This stance contrasts with the pre-2007 approach of the Bush Administration, in which the abductions issue provided a platform for Tokyo and Washington’s strategic priorities to converge. In the earlier Six- Party Talks, the United States and Japan joined to pressure North Korea on not only nuclear weapons, but also on human rights, refugees, and the abductions. The next several months are likely to be decisive for how the abductions issue will affect the U.S.-Japan relationship. Foremost is how progress in the Six-Party Talks proceeds: if time pressure and proliferation concerns lead the Bush Administration to accept a nuclear deal with North Korea that does not appear to enhance Japanese security, leaders in Tokyo may find it difficult to convince their citizens to steadfastly support U.S. strategic interests, including military basing. However, amid some indications that Tokyo may be reconsidering its priorities in the negotiations, a deal that extracts significant concessions from Pyongyang could reinforce the fundamentally strong U.S.-Japan alliance.

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BACKGROUND In the 1980s and 1990s, circumstantial evidence began to surface that North Korean agents were responsible for the disappearance of several Japanese citizens. Isolated press reports addressed the suspicion, but the Japanese government initially dismissed the accounts and reacted slowly to the allegations. As Tokyo moved to re-establish diplomatic relations with Pyongyang in the early 1990s, some Japanese politicians saw the issue as a possible obstacle to normalization, and may have suppressed information that suggested North Korea’s responsibility. [2] Unconfirmed reports from North Korean defectors emerged that Japanese nationals were held by North Korea, but the mainstream media largely ignored them. Then, in 1996, an article appeared in which a North Korean defector spoke about his experience at a “spy school” where native Japanese trained agents in Japanese language and culture. Support groups for the victims’ families formed in Japan, and politicians — particularly those opposed to negotiating with Pyongyang — mobilized support in the Diet (parliament). In 1998, Pyongyang’s test of an intermediate-range ballistic missile over Japan raised security fears about the threat from North Korea and made the general Japanese public more suspicious of its behavior. Eventually, the kidnappings became part of the diplomatic agenda with North Korea and, in September 2002, Prime Minister Junichiro Koizumi traveled to Pyongyang to “resolve” the abductions issue and move toward normalizing relations. At the 2002 summit, North Korean leader Kim Jong-il admitted to and apologized for North Korean agents’ abduction of 13 Japanese citizens. The kidnappings took place in Japan and Europe between 1977 and 1983. He claimed that only five remained alive. [3] The Japanese public, shocked at the revelations, became fixated on the drama, with attention reaching its height a month later when the five abductees were returned to Japan. In May 2004, Koizumi returned to Pyongyang to secure the release of five of the abductees’ children. [4] Coverage of the abductees saturated the press, and the issue quickly became the top priority in Japan’s North Korea policy. Given North Korea’s record of truculence and denial, many analysts expressed surprise that Kim Jong-il admitted the kidnappings and allowed the abductees and their families to

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return to Japan. However, when Tokyo pressed for proof of the remaining abductees’ deaths, Pyongyang produced apparently forged death certificates and traffic accident reports. When asked for physical evidence, North Korean officials provided cremated human remains that most Japanese felt to be of dubious origin (see below) and also claimed that some remains were washed away in floods. The inconsistency and apparent deception compounded the Japanese public’s anger at North Korea and reinforced the views of many conservative politicians that Pyongyang should not be trusted. Because of the shaky evidence, Tokyo determined that its policy would be based on the premise that all the remaining abductees are alive.

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THE EFFECT OF THE ABDUCTIONS ON JAPAN’S POLITICAL LANDSCAPE As the abductee drama has played out, three Japanese prime ministers have navigated the issue in subtly different ways, though always mindful of the emotional reaction of the public. Koizumi’ s bold initiative to visit Pyongyang in 2002 brought the issue to the surface, although he may not have anticipated the strong response from the public. Koizumi’ s position toward North Korea gradually hardened as the public’s criticism of North Korea swelled and the Bush Administration indicated a reluctance to aggressively pursue a negotiated settlement with Pyongyang. His successor, Shinzo Abe, rose to prominence based on his hardline position toward North Korea, specifically on the kidnappings. Upon taking office, Abe established a headquarters in the Cabinet Secretariat to coordinate abductee affairs; led efforts to impose international and unilateral sanctions and restrictions when North Korea tested missiles and a nuclear device in 2006; and called for the immediate return and safety of all the abductees, on the assumption that all were still alive. Since assuming the premiership in 2007, Yasuo Fukuda has stated his interest in re-engaging more actively in the Six-Party Talks, but has not indicated that he will adjust Japan’s policy on the abductees. Advocacy groups for the abductees note that he has retained the office that Abe created, but voice some doubt that his stance will mirror Abe’s approach. Due to the overwhelming public reaction, there has been little open opposition to the official policy on the abductions. Opposition political parties have not challenged the ruling party’s orthodoxy on the issue, and politicians from all parties have formed special Diet committees to indicate their support for the victims. Advocacy groups have gained particular clout as the controversy grew: the Association of the Families of Victims Kidnapped by North Korea, made up exclusively of relatives of the abducted, have become major media figures. Other groups of conservative activists, some explicitly committed to regime change in Pyongyang, have elevated their political influence and public profile. [5] Among the most active of these are the National Association for the Rescue of Japanese Kidnapped by North Korea (NARKN).

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The Yokota Case As with many popular movements, the outrage over the abductees’ fates has a powerful poster child. Megumi Yokota was only 13 years old when she was reportedly snatched by North Korean agents on her way home from school. North Korean officials claimed that she committed suicide in 1993. Her case had drawn widespread media attention, both domestically and internationally, as the subject of documentaries and even an American folk song. As leaders of the Association of the Families of Victims Kidnapped by North Korea and in frequent media appearances, Yokota’ s parents have become the face of the abductee cause. In 2006, President Bush invited the Yokotas to the White House, later calling the encounter “one of the most moving meetings since I’ve been the president.” Earlier that day, Yokota’ s mother testified in front of a House Subcommittee on Asia and the Pacific and Subcommittee on Africa, Global Human Rights and International Operations joint hearing. Because of Yokota’ s high profile, any progress or setbacks to resolve her case is of particular symbolic importance. The public reacted with outrage when North Korea provided what they claimed were her cremated human remains to Japan, only to have Japanese officials later announce that they were not Yokota’s. [6] At the 2002 summit, North Korea relayed that Yokota had a fifteen-year-old daughter. A reunion of Yokota’ s parents with their granddaughter has been floated as a possible path to reconciliation, and observers maintain that any settlement of the Yokota case would make a significant impact on the public perception of the issue.

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The Abductions Issue in the Six-Party Talks U.S.-Japanese Tension. As the Bush Administration has moved aggressively to reach a deal on denuclearization with North Korea in the Six-Party Talks since early 2007, distance has emerged between Washington and Tokyo. Japanese officials have expressed alarm that the United States may remove North Korea from its list of state sponsors of terrorism. [7] The removal, considered likely by many analysts, is one of a series of phased actions agreed to in the Six-Party Talks in exchange for Pyongyang allowing the disablement of the Yongbyon reactor and providing a declaration of nuclear programs. In the past, U.S. leaders have linked North Korea’s inclusion on the list to the abduction issue, although State Department officials reportedly claim that the issue is not a legal obstacle for removal. In December 2007, the Committee on Abduction of Japanese Citizens by North Korea of Japan’s Lower House adopted a resolution urging the United States to refrain from “de-listing” North Korea. The resolution read, in part, “We are concerned that if North Korea is removed from the list without repatriation of the detained victims, the Japan-U.S. alliance will be adversely affected and the Japanese people will be greatly disappointed.” A U.S. decision to delist North Korea is unlikely to shake the foundations of the fundamentally strong alliance, but Japanese analysts say that the U.S.-Japan relationship could suffer in the short-term if Washington accepts a weak deal. If the Japanese public views Washington as abandoning the abductees, Japanese leaders may have difficulty convincing their public to continue to support the United States on a range of strategic interests, including the hosting and realignment of U.S. military bases in Japan. If, however, the government can point to enhanced Japanese security because of North Korean concessions on disarmament,

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the public may be more accepting, particularly if the United States continues to press Pyongyang for more information on the kidnappings. Japan-North Korean Bilateral Talks. One of the five working groups established by the breakthrough February 13, 2007 agreement in the Six-Party Talks is dedicated to resolving Tokyo’s and Pyongyang’s bilateral controversies. [8] The agreement states that the working group will hold talks to work toward the normalization of relations on the basis of settlement of “outstanding issues of concern,” a phrase interpreted to mean the abductions and compensation to North Korea for Japan’s colonial rule of the Korean peninsula from 19101945. Two rounds of consultations in Vietnam and Mongolia yielded no major progress on the stalemate. Only one other working group is dedicated to strictly bilateral issues (the U.S.North Korean normalization process), which some say indicates the high priority of the abduction issue. On the other hand, relegation of the abductions to a separate track could demonstrate a willingness to move the rest of the process forward without satisfactory resolution of the kidnappings. Prospects for a Change in Tokyo’s Policy. Although the issue remains politically sensitive in Japan, many commentators acknowledge some degree of “abductee fatigue” among the Japanese public. Government officials and influential opinion leaders also privately voice concern that the abductee issue has led to Japan’s marginalization in the multilateral negotiations on North Korea’s nuclear weapons program. The combination of fears of diplomatic isolation and concern about a range of security threats from North Korea may lead the defense establishment and policy elite to support any shift or adjustment to the current policy on North Korea. Fukuda’s reputation as a pragmatist who places special emphasis on developing closer ties with Asian nations suggests that he would be amenable to a compromise approach to North Korea, particularly if Pyongyang indicated any movement on the issue. In addition, his rhetoric when speaking about Japan’s interests in North Korea signifies a shift from Abe’s singular focus on the abductions issue: Fukuda describes the kidnappings as one of three areas of concern, the others being Pyongyang’s nuclear and missile programs. However, Fukuda’ s tenuous hold on power and the threatened collapse of his ruling party have precluded any serious foreign policy initiatives.

The Abductions Issue and Regional Relations Since the Six-Party talks began, Tokyo’s focus on the abductions issue has isolated it from the other parties, particularly China and South Korea. Some critics say that the abductions issue allows Japan to play the victim while refusing to take responsibility for its own historical offenses, particularly in the World War II era. [9] Thorny historical controversies between Japan and its neighbors, however, have showed significant signs of easing in the past few years. After a period of rocky relations under Koizumi, Abe and Fukuda made strides in warming ties with Seoul and Beijing. Amid an overall detente in Sino-Japanese relations, Fukuda visited China in January 2008. When asked about the abductions issue during the visit, Chinese Premier Wen Jiabao reportedly stated that “we understand Japan’s position, and we are confident that a resolution can be reached through dialogue.” New South Korean President Lee Myungbak has stated explicitly that he does not intend to press Japan to apologize for historical grievances as his

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predecessor did. In his capacity of a Special Envoy, Lee’s brother, who is also the vice speaker of South Korea’s National Assembly, reportedly told Japanese officials that the new leader “understands and supports” Japan’s position on the abductee issue. Lee has also indicated that he is more willing to raise human rights issues with the North than his predecessor. Most observers think it is unlikely that Chinese or South Korean negotiators will actively champion the abductees’ cause, but both capitals appear to recognize the need for Japanese involvement (and funding) in any diplomatic arrangement with North Korea. Optimistic observers say that new leadership in Tokyo and Seoul, combined with Beijing’s interest in maintaining smooth relations before the 2008 Summer Olympics and the Bush Administration’s determination to reach a negotiated agreement this year, provide an environment ripe for a breakthrough.

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[2]

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[5] [6]

[7] [8]

For more information, see CRS Report RL33436, Japan-U.S. Relations: Issues for Congress, coordinated by Emma Chanlett-Avery, and CRS Report RL33740, The Changing U.S.-Japan Alliance: Implications for U.S. Interests, by Emma ChanlettAvery. Johnston, Eric. “The North Korea Abduction Issue and Its Effect on Japanese Domestic Politics,” Japan Policy Research Institute. JPRI Working Paper No. 101 (June 2004). Koizumi had presented a list of 13 names of suspected abductees, of which the North Korean side said eight had died, four were alive, and one never entered North Korea. They also confirmed that one abductee not on the list was alive. Since then, the Japanese government has added three more names to the list, for a total of 17 abductees. One return abductee’ s husband, Charles Jenkins, and two children did not return to Japan with the others. Jenkins, an American soldier who defected to North Korea in 1965, feared facing desertion charges from the U.S. military if he came to Japan. Japanese officials arranged for the family to reunite in Indonesia, and eventually for all four of them to come to Japan in July 2004. Turning himself into U.S. authorities, Jenkins served a 25-day sentence at a U.S. naval base in Japan. In November 2004, he was released and joined his family in northern Japan. Japan and North Korea: Bones of Contention, International Crisis Group Report. June 2005. Controversy over the remains ensued, with scientific laboratories providing conflicting reports on the DNA analysis. The science journal Nature published an article questioning the integrity of the analysis performed by one of the labs in which one of the forensic experts who tested the remains said he could not rule out that the samples had become contaminated and therefore incapable of producing accurate results. See Nature, Volume 433-434, February-April 2005. For more information, see CRS Report RL306 13, North Korea: Terrorism List Removal? by Larry A. Niksch. For more information, see CRS Report RL33590, North Korea’s Nuclear Weapons Development and Diplomacy, by Larry A. Niksch.

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North Korea’s Abduction of Japanese Citizens and the Six-Party Talks

Japan and North Korea: Bones of Contention, International Crisis Group Report. June 2005.

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In: North Korean Foreign Relations in the Post-Cold War World ISBN 978-1-60692-806-6 Author: Lyman R. Rechter © 2009 Nova Science Publishers, Inc.

Chapter 4

BRIEFING AND HEARING BEFORE THE COMMITTEE ON FOREIGN AFFAIRS, HOUSE OF REPRESENTATIVES, ONE HUNDRED TENTH CONGRESS, FIRST SESSION ∗

U.S. Government Printing Office NORTH KOREA

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Thursday, January 18, 2007 House Of Representatives, Committee On Foreign Affairs, Washington, DC. The committee met, pursuant to notice, at 1:32 p.m., in room 2172, Rayburn House Office Building, Hon. Tom Lantos (chairman of the committee) presiding. Chairman Lantos. The committee will come to order. Seven years ago, one of our nation’s great strategic thinkers outlined a new and bold approach to the North Korean challenge. He said that the United States should pursue a comprehensive and integrated approach toward the nuclear and missile programs of what so many have come to accept as the hermit kingdom. But this time, we would be equally prepared to wield both carrots and sticks to entice the hermit into a meaningful dialogue. Pyongyang’s verifiable steps to eliminate their nuclear and missile programs would be met with a package of incentives structured in a carefully modulated, step-by-step fashion, and if Pyongyang refuses to negotiate a verifiable deal, America and its allies would move assertively to contain the North Korean threat and protect the international security. I am very pleased that the author of that ground-breaking and tough-minded plan, former Secretary of Defense Dr. William J. Perry, is here with us today to present his views on the forward course with North Korea. Given the dramatic increase in the threat posed to the ∗

This is an edited, excerpted and augmented edition of a the Committee on Foreign Affairs, House of Representatives publication.

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United States by Pyongyang over the past 7 years, one must wonder if our national interests would have been better served by fully implementing Dr. Perry’s thoughtful recommendations instead of deriding any and all foreign policy initiatives of the Clinton administration. The initiation of the Six-Party Talks was smart policy, but the deep divisions within the administration have hobbled the negotiations from Day One. Until recently, the administration seemed satisfied with sending an American delegation who read canned talking points instead of engaging in a meaningful dialogue. I have great confidence in Ambassador Christopher Hill, but I must wonder whether Pyongyang, having witnessed the first few years of this administration, has already made the strategic decision to delay serious negotiations until the next President is on the job. It is my hope that this is not the case. But North Korea’s decision to test a nuclear device just 3 months ago would seem to indicate that a deal may not be in the offing. In the meantime, we must have a simple goal. We must work assiduously to keep the door open for diplomacy. Ambassador Hill must be given maximum flexibility to deal with the North Koreans to advance the ball toward a verifiable and comprehensive deal. I was very encouraged by Ambassador Hill’s comments yesterday in Berlin, opening the door to an eventual bilateral dialogue with the North Koreans on normalization of relations after the nuclear issue has been resolved. In order to break down decades of mutual mistrust, we must also open up new channels of communication between North Koreans and the American people through increased cultural contacts. I will continue to do my modest part. I have led two substantive trips to North Korea to meet Pyongyang’s negotiating team, and relations with my hosts at the highest levels of government improved significantly over time. I will return to North Korea again this spring to underscore the importance of continuing a meaningful and substantive dialogue between our two nations, with the goal of establishing a Korean peninsula free of nuclear weapons. Concrete progress toward a comprehensive deal may prove elusive unless we return to the approach outlined by Dr. Perry 7 years ago: Sustained, high-level, carefully calibrated, and reciprocal diplomacy. Short of this, we may very well see additional nuclear and missile tests from the North. I am delighted to acknowledge the outstanding contributions made to peace on the Korean peninsula by our other distinguished witness today, Ambassador James Lilley. As ambassador to South Korea and, subsequently, China, Jim really played a crucial role in developing and implementing American policy in the region for decades. We greatly appreciate his penetrating insights into the North Korean regime and his recommendations on how we can improve our policy toward the Korean peninsula. As our two witnesses today know very well, North Korea policy is bereft of easy options: Military, economic, or political. That said, the North Korean nuclear and missile threat is on a sharp rise, and it is imperative that our nation find a way, with the cooperation of China, South Korea, Japan, and Russia, to check this threat before the security of North Asia is further destabilized. The stakes are enormous. North Korea could sell bombs or plutonium to third parties. It could complete a large reactor capable of producing 10 bombs every single year, and nuclear proliferation in Asia could be on its way. We must prevent this from happening. Before turning to our witnesses today, I am delighted to recognize my good friend, the distinguished ranking member of the committee, Congresswoman Ileana Ros-Lehtinen, for her opening comments.

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Ms. Ros-Lehtinen. Thank you so much, Mr. Chairman. Thank you for the time, and let me begin by thanking our witnesses for their testimony today. North Korea’s increasingly reckless behavior represents an immediate and growing threat not only on the Korean peninsula but to the entire Asia-Pacific region. This region has enjoyed an unprecedented period of peace and prosperity for several decades and has been transformed into an engine of the global economy. However, North Korea’s repeated provocations, including last year’s July 4th missile launches and the October nuclear test, pose a great threat to the stability required for the region’s continued growth. The impact of a major crisis would be felt far beyond Korea, not only in Tokyo and Hong Kong but in London and New York as well. Concerns have been raised that Kim Jong Il and his regime may conduct a second nuclear test in the near future. This, in turn, could trigger a nuclear arms race in the region, with Japan, South Korea, and perhaps even Taiwan reevaluating their fundamental security needs. The threat posed by North Korea’s nuclear program has wider, even global, implications. The regime has long been a major proliferator of nuclear and other weapons-of-massdestruction materials and technology. Its ties to the Dr. A.Q. Khan nuclear black market network have been extensively documented. In addition, Pyongyang has been involved for many years in missile sales to Iran and other rogue states in the Middle East. The damage caused to the northern cities of Israel last summer from North Korea missiles supplied by Iran to Hezbollah is a stark example of the threat posed by the regime’s continuing proliferation. We are seeking answers today on how to counter North Korea’s increasingly provocative behavior. What steps can the United States take, working with specific allies, through the SixParty Talks, and at the U.N. Security Council, to put the North Korean nuclear genie back in the bottle? A regional proliferation problem needs a regional solution, as this is a concern which extends beyond the outstanding bilateral issues which separate Washington and Pyongyang. That will require a greater commitment and concrete action from other countries in the region, especially China. Greater attention must also be focused on the various issues and the means by which North Korea has accessed the hard currency needed to finance its proliferation activities. Following the clampdown on the Macau-based Banco Delta Asia in 2005, Kim’s regime was forced to resort to even more desperate and illicit activities to keep the cash flowing. These activities included ongoing schemes, such as fraudulent insurance claims and other financial scams, involving the United Nations Development Program and other U.N. agencies. We must work to deny these resources to the regime in North Korea. I expect this committee to devote continued attention to this problem in the months ahead. Regarding the subject of the United Nations and North Korea, it should be noted that the U.N.’s most recent special envoy for North Korea was Canadian businessman and disgraced former U.N. official Maurice Strong. I remind my colleagues that Mr. Strong received $1 million from Saddam Hussein, via Tongsun Park, who was convicted last year in a United States Federal court. Mr. Strong also received a number of gifts from Mr. Park, including subsidized rent of Strong’s New York office. I will be very interested to see who the new secretary-general selects to be Maurice Strong’s replacement as the special envoy.

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Given that Mr. Strong remains and retains strong friends in high places at the U.N., he may seek to play a role in selecting his own replacement. The U.N. has the potential to play a positive role in 2007 with respect to North Korea. But it may choose to continue to play a very negative role by serving as a conduit for cash for the North Korean regime. Kim Jong Il’s past eagerness to engage in illicit activities, including drug trafficking in Japan and counterfeiting of United States currency, indicates that the Dear Leader would have no hesitation in striking a deal of proliferation for profit. This is an issue of utmost urgency, and I welcome the comments of our distinguished panel of experts. Thank you very much, as always, Mr. Chairman. Chairman Lantos. Thank you very much, Congresswoman RosLehtinen. Before I turn to other members of the panel, let me just say, the last 2 days, we had the opportunity of hosting the incoming secretary general of the United Nations, Ban Ki-moon. Yesterday morning, he met with the Foreign Affairs Committee and the night before we hosted him at a dinner, and I am convinced that he is determined to change the culture of the United Nations, and he is approaching his very complex and difficult task with a firm determination to introduce the highest ethical standards within the U.N.’s structure, and I have every confidence that his appointments to the position you mentioned and all others will meet with our approval. I am very pleased to recognize the distinguished chairman of the Asia Subcommittee for 3 minutes. Mr. Faleomavaega. Thank you, Mr. Chairman. I certainly would like to offer my personal welcome to Secretary Perry and Ambassador Lilley and look forward to their comments and certainly commend the outstanding services that they have rendered for our nation, especially on our foreign policy questions in this important region of the world. Mr. Chairman, despite tough rhetoric from the administration, North Korea continues to have enough nuclear grade plutonium for six to eight atomic bombs, and, in October of last year, North Korea defied the international community and conducted its first nuclear test. Most will agree, the Six-Party Talks have not proven successful. For obvious reasons, it is time for the United States to reassess its policies in the Korean peninsula. Bilateral discussions between the United States and North Korea should seriously be considered by the Bush administration. What is the administration afraid of? There is no harm in talking. Ironically, during the time of our number one enemy that we have confronted for some 40 years, which happens to be the Communist-Marxist Government of the Soviet Union, and yet we constantly communicated with the Soviet Union. We had dialogues. Disagreements, yes, but we had a dialogue. We do not have to accept what North Korea says; neither should we place ourselves in a position where North Korea dictates what the policy should be. On the other hand, and in the interest of defusing a dangerous situation, we should not fear dialogue. I have always been concerned that we are at war in Iraq at a time when North Korea is pointing missiles at our own country and, I suspect, probably even in other countries of the region. Add a nuclear warhead to the missiles, and North Korea will become a distinguished member of the nuclear club, thereby challenging the military and strategic dynamics of the entire Asia-Pacific region. Japan, as an economic power second only to the United States, is not a permanent member of the United Nations Security Council and does not have a nuclear capability to

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defend itself if and when North Korea chooses to perhaps point Japan with its nuclear missiles and its capabilities. Furthermore, with the United States preoccupation with Iraq at this time, will the United States defend Japan at all costs, or will Japan have to go nuclear to protect its own interests? If Japan does go nuclear, how comfortable with China feel? And then there is the issue of Pakistan. The United States continues to subsidize Pakistan’s military at about $80 million per month, which is roughly equal to one-quarter of Pakistan’s total defense expenditures. What the public may not know is that North Korea and Pakistan have been engaged in conventional arms trade for over 30 years, and then last year, 2006, General Musharraf admitted that Pakistan has transferred nuclear technology to North Korea and other rogue nations as well. What does a Pakistan-North Korea alliance mean for India, and why does the United States continue to turn a blind eye. I do not know. These questions are daunting, and given the dangerous circumstances of our times and the potential for nuclear proliferation in the Asia-Pacific region, I believe our most important responsibility is to do all in our power to further peace. As we can all agree, the most valuable resource of any nation is its people, and under no circumstances should we expend our lives if alternatives to war can be found. This is why I am hopeful that the United States will seriously consider bilateral discussions with North Korea and reconsider its position toward Iraq. I am happy to say that there was a recent article in today’s papers, the New York Times and the Washington Post, that Secretary Chris Hill has recently held 2-day sessions with the North Korean leaders, I believe, in Berlin, after consultations with our Secretary of State, Condi Rice, and shortly our subcommittee definitely plans to hold hearings with Secretary Hill on this issue and see where we need to go from there. Thank you, Mr. Chairman, and I look forward to hearing from our witnesses. Chairman Lantos. Thank you very much. Mr. Royce. Mr. Royce. Thank you, Mr. Chairman, and welcome, Ambassador Lilley, and welcome, Mr. Perry. Last Congress, this committee passed legislation that I and others on this panel championed, the North Korean Nonproliferation Act of 2006, and that bill became law, and I am pleased that this committee is keeping a focus on North Korea, and I look forward to building on last year’s work. I do, though, come to this hearing a little surprised. A press report this week noted that the Treasury Department is scrutinizing the $24 million frozen in the Banco Delta Asia case—now that is in Macau—looking to segregate the so-called legitimate and illegitimate North Korean accounts. At a November hearing with Under Secretary Burns, I asked that we not go wobbly on financially pressuring Pyongyang. It would seem to me very difficult, if not impossible, to differentiate between these activities, given that most of the country’s financial system is based on a broad range of illicit, state-sanctioned activity, such as trade in missile technology to state sponsors of terrorism, such as counterfeiting and narcotics trafficking. Now that is the main source of income coming into the country. It seems that some are reasoning that nothing should get in the way of brokering a deal with North Korea on its nuclear weapons. Chairman Lantos. I am sorry. The gentleman’s time is up.

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Mr. Ackerman. Mr. Ackerman. If this morning’s papers are to be believed, Mr. Chairman, we have finally arrived at a point that many of us have been advocating since the beginning of the Bush administration: Direct negotiations with North Korea. If it were not so horrendously late in the game, I would make a motion to give three cheers for the victory of rationalism over ideological purity. While the administration dithered externally and bickered internally, North Korea went about the business of reprocessing plutonium and, last fall, testing a nuclear weapon. Those inside the administration who believed that if we simply sanction, isolate, and pressure the North long enough they will collapse, have misread the situation from the beginning. North Korea’s obvious willingness to defy China, its closest ally and largest provider of foreign aid, should be a clear signal to all concerned that Kim Jong Il thinks he can survive the wave of international sanctions and still have his bombs. We know what the outlines of the deal look like. We get a nuclear-free Korean peninsula. They get security guarantees, economic assistance, and integration into the community of nations. Now that the Bush administration has gotten over its fear of direct negotiations, it is time to get to work, and I look forward to hearing from our two very distinguished witnesses. Ms. Ros-Lehtinen. Mr. Chairman, if I could ask a question about the time element. It seems to me that Mr. Royce still had a minute and 30 seconds to go on his time, and then when Mr. Ackerman started to speak, it took a minute to get his time up on the board. I do not want to have a petty, time-issue discussion with you, Mr. Chairman. You are my good friend, and I know you want to work in a bipartisan way, but if you want to have those time-element issues, we really need to be fair, and I know that you are a fair man, and I am not blaming the timekeeper either, but—— Chairman Lantos. Well, let me advise the ranking member, the policy of the Chair is as follows: The ranking member and the Chair make opening statements without time limit. The chairman and the ranking member of the relevant committee get 3 minutes. The ranking member of the Asia Subcommittee is not present. Mr. Royce, as all other members, receives 1 minute time. I hope this clarifies the picture. Ms. Ros-Lehtinen. That would be fine if—— Mr. Sherman. Mr. Chairman, if I could be recognized. I fully understand your policy. I think these hearings are so involved with proliferation that perhaps there would be two subcommittee chairs that would be accorded the extra time. Chairman Lantos. That seems like a reasonable suggestion and the ranking member of the Nonproliferation Subcommittee and the chairman will each be recognized for 3 minutes. Ms. Ros-Lehtinen. Thank you, Mr. Chairman. Chairman Lantos. Mr. Chabot. Mr. Chabot. I am not the ranking member, Mr. Chairman. Chairman Lantos. But you are recognized for a minute. Mr. Chabot. Well, thank you very much. I think we look forward to the testimony of both of the excellent witnesses we have here today. I guess, just in response to some of Mr. Ackerman’s remarks, and this committee tends to be bipartisan, but there are some partisan remarks which occur, and I think blaming this administration for dithering, et cetera, sort of begs the question of the previous administration, and some of the problems that we see right now with North Korea, I think, are a direct result of the botched negotiations that took place and the mess that this administration found itself

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in because of the mistakes of the previous administration. I guess there goes bipartisanship. I yield back the balance of my time. Chairman Lantos. I thank the gentleman. I am pleased to recognize the chairman of the Nuclear Nonproliferation Subcommittee for 3 minutes, Mr. Sherman. Mr. Sherman. Thank you, Mr. Chairman. We had a strategy laid out: Carrots and sticks in order to achieve CVID, complete, verifiable, irreversible disarmament. The strategy has failed. It has failed because we have not had enough carrots, and we have not had enough sticks, not because it was poorly conceived. We need more carrots. We ought to be offering, as now Secretary Hill has finally done so, normal diplomatic relations. We ought to be offering trade. We ought to be offering a nonaggression pact. We should not be offering carte blanche to counterfeit American currency. But with more carrots, we stand a better chance of achieving the objective. We also need more sticks. Now, where do you go in this world when you need something? When you need a shirt, you need a radio, you need sticks, you go to China. That is why we are running a $200 billion trade deficit with China. Well, in this case, we need to import from China some sticks. Now, we could go to China and beg and plead and lecture them and tell them that it is in their interest to inform North Korea that their oil might be turned off if they turn down this plethora of carrots that America is offering. We have tried that. China does not need lecturing. It does not need begging. It does not respond to begging. What we need to do is inform the Chinese that how we deal with the currency issue will be dramatically affected by whether they are willing not only to look at their own national interest in preventing North Korea from having nuclear weapons but are willing to look at our even greater concerns in that area. To dismiss this and to say, well, China does not want North Korea to have nuclear weapons, so whatever China chooses to do must be the right thing for China to do, is to continue business as usual, continue to have inadequate sticks, and no doubt will lead to the same results that we have had so far. The problem we have in Washington is that those who are concerned with national security are far less powerful than those who profit from imports. If we can galvanize the American people to say that we are going to have to get tougher with Beijing in order to get them to do more to achieve what is a joint concern and a joint goal, then we may succeed. To ask Secretary Hill to go meet, at a two-sided table or a six- sided table, to offer an inadequate collection of carrots and to tap a pencil because he has no sticks guarantees continued failure. I yield back. Chairman Lantos. Thank you. If Mr. Royce would like additional time, I am delighted to give it to him. Mr. Royce. Mr. Chairman, I appreciate that very much. I would just wrap up by saying that I want to end the North’s nuclear program as well, but brushing aside things like counterfeiting of $100 bills, counterfeiting of hundreds of millions of dollars in $100 bills, which is a direct attack on a protected national asset, which is our dollar, not to mention North Korea’s record on human rights, ignores the reality of this regime and makes me wonder if there is a deal that the North will abide by. We know the history here, and it seems to me that you have got a mafia state that is counterfeiting our currency, and, under that circumstance, it would seem a better concept to freeze the assets, to keep them frozen, and to deny that state the ability to have the hard currency to put into its nuclear weapons program, as well as stopping its trafficking in

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narcotics, and bringing the pressure to bear financially to change that regime. That would seem to be the solution to me. Mr. Chairman, I appreciate the time. Thank you. Chairman Lantos. Surely. Congresswoman Sheila Jackson Lee for 1 minute. Ms. Jackson Lee. Mr. Chairman, thank you very much to you and the ranking member for, I think, this important hearing. Let me thank and welcome Secretary Perry and Ambassador Lilley. As Secretary Albright indicated yesterday, in this business of diplomacy and negotiations, silence is not golden. I hope that we will look forward into the 21st century and engage not only in bilateral talks but any manner of negotiations and diplomacy that will generate the kind of resolution we need between North and South Korea. Our soldiers now are placed on the very important military demarcation line that has stayed over 50 years. We owe them engagement, and I would hope that we would cease using terms like “axis of evil,” and I hope we would engage in discussions about the misuse and abuse of our currency, but we cannot solve any problems by the deafening silence that I am hearing from the present administration. With that, Mr. Chairman, I yield back. Chairman Lantos. Thank you. Mr. Rohrabacher. Mr. Rohrabacher. Thank you, Mr. Chairman. Let me compliment you on the way you just handled your first little crisis here, and your wisdom has shown through, and thank you very much. Let me note that we do not have enough carrots and sticks to affect any policy decisions on the part of North Koreans as long as we feed the people of North Korea. We have taken the pressure off North Korea by making them the recipients, the largest recipients, of American foreign aid in Asia. They have been receiving hundreds of millions of dollars of food aid. Why would they care what our other carrots and sticks are as long as we are feeding their army and feeding their people? Let us note that no matter what type of negotiations we have, we have taken away our own leverage there. We should be supporting regime change and, with the strongest and harshest language, condemning this brutal dictatorship and siding with those elements in North Korea, trying to foster them, who would oppose this dictatorship. We need to hold them accountable for the counterfeiting and drug dealing. We need to make sure that the people of that country know what type of regime they have, and we have not taken the steps to do that. Finally, we need to hold China accountable for its relationship with Korea, which is nefarious. Chairman Lantos. The gentleman’s time has expired. Mr. Scott. Mr. Scott. Thank you very much, Mr. Chairman. Again, I would like to welcome you to the committee as well. I think that paramount to me and, I think, to a lot of the American people is they get a very sober, sober opinion from the two of you as to whether or not South Korea is maintaining this sort of cat-and-mouse game to kind of relay it over to the next administration, which could be 2 years. What would be the consequences of that, particularly given, if we are correct, that their capability is to make at least 10 nuclear weapons in each 1-year period, which would come to about 20?

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What is the probability, or what is our intelligence telling us about the probability, of them selling them to third parties or to a variety of terrorist groups, remembering that what I think is their most crucial problem is that their people are starving? It could very well be that they are using these nuclear weapons as collateral—— Chairman Lantos. The gentleman’s time has expired. Mr. Scott. I look forward to your testimony. Chairman Lantos. Mr. Inglis. Mr. Inglis. Mr. Chairman, I look forward to hearing from the witnesses and very much appreciate the hearing. Chairman Lantos. Thank you. Mr. Delahunt. Mr. Delahunt. Thank you, Mr. Chairman. I will be very brief. I want to commend you, Mr. Chairman, for indicating that you are contemplating a trip to North Korea. I think that is very important, and I would look forward to joining you on that effort. I think that is significant. I also want to express my concerns about the statement by the ranking member relative to the appointment to replace Mr. Strong, Mr. Michael Strong, and I would hope that, in camera, so to speak, she could share with us the evidence that he is attempting to influence that appointment. I think that is something that we all should be made aware of, and with that, I yield back. Chairman Lantos. Thank you. Mr. Tanner. Mr. Tanner. Thank you, Mr. Chairman. I just want to enjoy an unexpressed opinion here and look forward to the witnesses. I wanted to come hear you all. Thank you for being here. Chairman Lantos. Thank you very much. Ms. Woolsey. Ms. Woolsey. Mr. Chairman, I echo the remarks of the gentleman just before me. Chairman Lantos. Thank you. Mr. Wu. Mr. Wu. I will join the gentleman from Tennessee in his eloquence. Thank you, Mr. Chairman. Chairman Lantos. We thank all three of you, and I am delighted to welcome Secretary Perry. We are grateful that you are willing to share your wisdom and experience with us. You are one of our nation’s most distinguished strategic thinkers, and we look forward to your testimony. Could you push the right button? Mr. Perry. I have submitted written testimony, with your permission, to enter into the record. Chairman Lantos. Without objection. Mr. Perry. And I will only summarize it in my comments. Chairman Lantos. Without objection.

STATEMENT OF THE HONORABLE WILLIAM PERRY, SENIOR FELLOW AT THE HOOVER INSTITUTION, FORMER SECRETARY OF DEFENSE Mr. Perry. In October of last year, the North Koreans tested a nuclear bomb. This test, the culmination of 6 years of failed diplomacy with North Korea, poses a serious threat to the United States and to our allies in the region.

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My testimony today will discuss the North Korea nuclear program by asking three related questions: Why should we care, how did they get there, and what should we do about it? We should care, not because North Korea is going to put its bombs in missile warheads and fire them at us. They are still far from having that capability, and even if they get it, deterrence would still be effective. The North Korea regime is not seeking to commit suicide. We should care because the North Korea nuclear program can stimulate a nuclear arms race in the Pacific with a host of dangerous consequences. We should care because, as North Korea proceeds unchecked, there will be very little chance of stopping Iran, and we should care because a Korean or Iranian bomb could end up in the hands of a terror group who could detonate it in one of our cities. North Korea has been working to achieve a nuclear weapons program for more than 20 years, and the United States has been working that same period of time to contain or delay that program. In my written testimony, I explain how their actions and our counteractions have played out these past 20 years, leading to five nuclear crises, which I will briefly summarize now. The first crisis occurred in 1990 and resulted in the freezing of the North Korea nuclear production under international inspection, but this freeze did not occur until they had produced a small amount of plutonium, enough to make one or two nuclear bombs. In 1994, we came close to a second Korean war over North Korea’s nuclear weapons program. In May 1994, North Korea ordered the international inspectors to leave and began preparations to reprocess their reactor fuel, which would have given them enough weaponsgrade plutonium to make a half-a-dozen nuclear bombs. I was secretary of defense at that time, and I publicly warned North Korea that the United States considered the making of plutonium to be a red line. I then requested that the Joint Chiefs prepare a contingency plan for conducting a strike on the nuclear facility Yongbyon, using conventionally armed, precision-guided missiles, and I directed preparations to augment our deployment in Korea with tens of thousands of troops. I was literally in the cabinet room briefing President Clinton on the reinforcement plan when the call came from Pyongyang that Kim Il Sung was ready to freeze activities at Yongbyon and begin serious negotiations. So, in the end, that crisis was resolved not by war but by a diplomatic agreement known as the “Agreed Framework.” The Agreed Framework called for North Korea to continue indefinitely the freeze at Yongbyon, to be followed in time by the dismantlement of those facilities. South Korea and Japan agreed to build new, commercial, light-water reactors for North Korea and the United States agreed to supply fuel oil to North Korea until the lightwater reactors were completed. In 1998, we appeared to be headed for another crisis like the one in 1994. North Korea had begun the deployment of medium-range, ballistic missiles that could target Japan and the design of two long-range missiles that could target parts of the United States. Our concern over these programs came to a head in August 1998, when North Korea flew an ICBM over Japan, landing in the Pacific west of Hawaii. In response, President Clinton established a sweeping review of our North Korea policy, which he asked me to head. I was, by this time, out of government and back at Stanford University. The key finding of that review was that North Korea was undergoing terrible economic hardship, including widespread famine, but these hardships were unlikely to cause the regime

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to be overthrown. Therefore, I said, we had to deal with the North Korean regime as it was, not as we would wish it to be. In dealing with North Korea, I recommended two alternative strategies. If North Korea would forego its long-range missile program and nuclear weapons program, the allies would move to a comprehensive normalization of relations. Alternatively, if North Korea did not remove the threat, the allies agreed to take necessary actions to contain that threat. In May 1999, I led an American delegation to Pyongyang to present those alternatives to the North Koreans, with the full backing of the Japanese and South Korean Governments. That meeting was followed by substantial evidence of a general thawing underway, including the first-ever summit meetings between North and South Korea. Kim Jong Il sent a senior emissary, Marshall Jo, to Washington, where he met with President Clinton. On his way to Washington, Marshall Jo stopped off at Stanford to consult with me about his upcoming meeting with the President. Based on my discussions with Marshall Jo, I believed that the United States was very near to the desired agreement with North Korea. But at that critical junction, the Bush administration took office. Engagement with North Korea was broken off, and for 11⁄2 years there was neither a dialogue nor a new policy. Whatever policy might have originated was preempted by the discovery, in 2002, that North Korea had undertaken to covertly start another nuclear program based on highly enriched uranium. As this new crisis unfolded, Dr. Carter and I wrote an op-ed piece urging the administration to deal with this emerging uranium program but not to abort the Agreed Framework. The Agreed Framework, in its 8 years of operations, had, in fact, kept the North Koreans from building 50 to 100 nuclear weapons. Nevertheless, the Bush administration cut off the fuel oil they had been supplying under the Agreed Framework and persuaded Japan and South Korea to stop work on the reactor. North Korea, in response to this cutoff, declared the Agreed Framework terminated, ejected the inspectors at Yongbyon, reopened their reactor, and announced they were starting to reprocess the fuel rods. The United States, which had, in 1994, made reprocessing a “red line,” chose not to establish any red lines this time, and the reprocessing proceeded. During this period, China became increasingly concerned and pressured North Korea to participate in multilateral meetings in Beijing. The first three Six-Party meetings made no apparent progress. The fourth meeting, held on September 5th with a new negotiator, Ambassador Chris Hill, resulted in an understanding that entailed North Korea giving up their nuclear weapons and the United States pledging not to initiate military force to overthrow the North Korea regime. All sides agreed that North Korea was entitled to have a peaceful nuclear program. But the day after the meeting concluded, first, Washington and then Pyongyang backed off from an essential part of the agreement. In the meantime, the North Korean nuclear program moved ahead at full speed, and it is clear that North Korea is well embarked on building a sizable nuclear arsenal. Given this background, the report, in June 2006, that North Korea was preparing to test an ICBM was particularly ominous. At that point, Dr. Carter and I wrote another op-ed piece recommending that the administration tell the North Koreans to take their ICBM off the launch pad and return it to the storage area, or the United States would destroy it.

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Instead, the administration responded to North Korean preparations with a press statement that they would consider the launch of an ICBM as “unacceptable.” North Korea launched the ICBM. To add insult to injury, they launched it on the Fourth of July and added to their fireworks display the launch of four medium-range missiles. The administration then released another press statement deploring the action. Late in September, we saw activity underway in North Korea indicating that a nuclear test was in preparation. The administration again warned that such a test would be “unacceptable.” On 6 October, North Korea conducted the test. Shortly after the nuclear test, I wrote another op-ed. I pointed out that because of past inactions on the part of the United States and the international community, there were no attractive options left for stopping North Korea from having a meaningful nuclear capability, but we could still formulate a strategy whose minimum objective is to keep the problem from getting worse, with a primary focus on two future dangers. The first danger is that North Korea will sell some of their bombs or plutonium to a third party. The Proliferation Security Initiative, designed to prevent the illegal transfer of nuclear material, is a good program, but we should never believe that it has a high probability of preventing an experienced smuggler like North Korea from transferring enough plutonium to make a nuclear bomb. That plutonium would be about the size of a grapefruit. The United States should issue a statement warning North Korea of the grave consequences to North Korea if a North Korean bomb is detonated in the United States, Japan, or South Korea, whether the bomb is delivered by North Korea or by a third party. That statement should be as unambiguous as the one President Kennedy made at the time of the Cuban missile crisis, and I would invite you to go back to your news accounts to read that statement. The second danger is that North Korea will finish work on their large reactor, which would give them the capability of making about 10 nuclear bombs a year. We should be prepared to exercise coercive diplomacy to keep that from happening. The United States should return to the negotiating table with a viable negotiating strategy which includes a credible, coercive element and which includes significant buy-in from the other interested parties. The most feasible form of coercion, or sticks, could come from the Chinese and the South Koreans, who could threaten to cut off their supply of grain and fuel oil if North Korea does not stop work on the large reactor. That alternative has always been resisted by China and South Korea, but the danger of a North Korean nuclear program should, by now, be obvious to them. An additional inducement for China and South Korea would be the concern that if they did not provide the coercion, the United States might take the only meaningful course of action available to it, which is destroying the reactor before it could come on line. This, of course, is a dangerous alternative, but, in fact, we have reached the stage where there are no alternatives left that are not dangerous, and allowing North Korea to move ahead with their robust program, building 10 nuclear bombs a year, could prove to be even more dangerous. The press reports that bilateral discussions may be underway between the United States and North Korea pointed to a new understanding about stopping the North Korea nuclear program. One can hope that these talks will be successful, and I, for one, have great confidence in the ability of our negotiator, Ambassador Chris Hill. But if not, the United

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States should be prepared to rally the concerned regional powers to cooperate in applying meaningful coercive diplomacy. If we are creative and energetic in applying our diplomacy, we can still contain this danger, and if we do, our children and our grandchildren will thank us. [The prepared statement of Mr. Perry follows:]

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PREPARED STATEMENT OF THE HONORABLE WILLIAM PERRY, SENIOR FELLOW AT THE HOOVER INSTITUTION, FORMER SECRETARY OF DEFENSE In September of last year the North Koreans conducted a test of an atomic bomb. This test, the culmination of six years of failed diplomacy with North Korea, poses a serious threat to the United States and to our allies in the region. My testimony today will discuss the North Korean nuclear program by asking three related questions: Why should we care? How did they get there? What should we do about it? We should care not because North Korea is going to put its bombs in missile warheads and fire them at us. They are still far from having that capability, and even if they get it, deterrence would still be effective. The North Korean regime is not seeking to commit suicide. We should care because a North Korean nuclear program can stimulate a nuclear arms race in the Pacific, with a host of dangerous consequences. We should care because if North Korea proceeds unchecked, there will be very little chance of stopping Iran. And we should care because a Korean or Iranian bomb could end up in the hands of a terror group who in turn could detonate it in one of our cities. North Korea has been working to achieve a nuclear weapon program for more than twenty years. And the United States has been working that same period of time to contain or delay that program. The first part of my testimony will explain how their actions and our counteractions have played out these past twenty years. I will organize this discussion around what I call the five nuclear crises, which curiously enough have occurred in four-year intervals coinciding with America’s off-year elections: 1990, 1994, 1998, 2002, and 2006. The first crisis had its roots in the 1960s, when the Soviet Union provided North Korea a research reactor and some training for Korean engineers. As the Koreans became more proficient at this new technology, Kim Il Sung apparently decided to use it to make a North Korean nuclear bomb. During the 70s, he asked in turn the Russians and the Chinese to help him do this, but was turned down by both. Apparently he concluded that North Korea would have to get its bomb the hard way and the slow way, through its own efforts. In 1989, American satellites saw evidence that this effort was reaching fruition. They detected a large facility in an advanced state of construction near the town of Yongbyon, and correctly concluded that this was a nuclear bomb program underway. The first Bush administration appealed to the Russians to pressure the North Koreans to join the NPT and submit their nuclear facilities to international inspection. But there was no real progress until the American government pulled its tactical nuclear weapons out of Korea in 1991.

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Within a few months of that action, the governments of North Korea and South Korea agreed to maintain the Peninsula free of nuclear weapons. And North Korea agreed to submit to international inspection. But they delayed the acceptance of inspectors long enough to reprocess the spent fuel from the reactor. When the inspectors did arrive, they made a quite thorough inspection and concluded from forensic evidence that North Korea had made more plutonium than the small amount they had declared. So the result of the 1990 crisis was a freezing of the North Korean nuclear production, but this freeze did not occur until they had produced a small amount of plutonium, probably enough to make one nuclear bomb. In 1994, we came close to a second Korean War over North Korea’s nuclear weapons program. In May of 1994, as the Yongbyon reactor completed its fuel cycle, the North Koreans announced that they were withdrawing from the NPT, and ordered the international inspectors to leave. They then began preparations to reprocess the fuel, which would have given them enough weapons-grade plutonium to make about a half-dozen nuclear bombs. The United States, Japan, and South Korea announced their intention to impose severe sanctions if North Korea made the plutonium. But North Korea said that they would consider the imposition of these sanctions as an act of war, and proclaimed that they would turn Seoul into a “sea of flames.” Some said this was only rhetoric, but as the secretary of defense at the time, I had to take North Korea’s threats seriously. So I warned North Korea that the United States considered the making of plutonium to be a “red line,” and that if they began reprocessing they faced military action from the United States. I then requested that the Joint Chiefs prepare a contingency plan for conducting a strike on the nuclear facilities at Yongbyon, using conventionally-armed cruise missiles. But I put that plan far to the back of the table to be brought forward only in the event of failure of the diplomacy then underway, the coercive element of which was a very severe sanction program. In the meantime, I undertook a detailed review of our contingency plans for responding to a North Korean attack. This review indicated that, while the allies would achieve a decisive victory, there would be very high casualties on all sides. It was also clear that we could significantly reduce casualties by reinforcing our troops in Korea before hostilities began, so I directed preparations to augment our deployment in Korea with tens of thousands of troops. This is the only time during my tenure that we came close to a major war, but at that moment, we were very close. Indeed, I was literally in the Cabinet room briefing President Clinton on the reinforcement plan when the call came from Pyongyang that Kim Il Sung was ready to freeze activities at Yongbyon and begin serious negotiations. So, in the end, that crisis was resolved not by war, but by a diplomatic agreement known as the Agreed Framework, negotiated for the United States by Ambassador Gallucci. The Agreed Framework called for North Korea to continue indefinitely the freeze at Yongbyon, to be followed in time by the dismantlement of those facilities. And it called for South Korea and Japan to build new commercial light water reactors for North Korea, and the United States to supply fuel oil to North Korea until the light-water reactors were completed. The agreement envisaged that the North Koreans would not have the capability to reprocess the spent fuel from their light- water reactor, and would have to send the spent fuel out of the country for reprocessing, so that the reactor could not be used for making weapon grade plutonium. With these safeguards, Japan and South Korea agreed to build the light-water reactor, and the Americans agreed to supply fuel oil to North Korea to compensate for the loss of electricity entailed by the shutdown of the reactor at Yongbyon.

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From 1994 until 2002 the facilities at Yongbyon remained frozen. That result was critical for security on the Peninsula, since during those eight years these facilities could have produced enough plutonium to make perhaps fifty to a hundred nuclear bombs. The dismantlement of Yongbyon was not called for until construction of the light-water reactor was completed, and that was still a few years away in 2002. Therefore production of plutonium could have been restarted in a few months if the Agreed Framework were terminated. So we always understood that the crisis had been postponed, not resolved. In 1998 we appeared to be headed for another crisis like the one in ’94. North Korea had built a large number of underground facilities that we assessed were for military applications. Particular concern was expressed over the facility under construction near the small town of Kumchang Ni, because this facility was large enough to house a reactor and processor like the ones at Yongbyon. We feared that this was evidence that the North Koreans intended to cheat on the Agreed Framework. At the same time, North Korea had begun the serial production and deployment of medium-range ballistic missiles. Additionally, they had undertaken the design of two long-range missiles, the Taepo Dong 1 and Taepo Dong 2. The two long- range missiles could reach targets in parts of the United States, as well as all of Japan. This missile program again raised a serious concern about North Korea’s nuclear aspirations, since an ICBM makes no military logic without a nuclear warhead. This concern came to a head in August, 1998, when North Korea flew a Taepo Dong over Japan, landing in the Pacific West of Hawaii. This test firing led to calls in the Congress and the Diet for a termination of the funding which supported the Agreed Framework. But if the Agreed Framework were to be aborted, there was no doubt that North Korea would respond with a reopening of the nuclear facility at Yongbyon. And this in turn would put North Korea in the position of producing the plutonium that would allow them to put nuclear warheads on their missiles. During this turbulent and dangerous period President Clinton established an outside Policy Review, which he asked me to head. After an intensive review, done jointly with South Korea and Japan, and coordinated with Russia and China, I submitted our conclusions and recommendations. The key finding was that North Korea was undergoing terrible economic hardship, including widespread famine—BUT that those hardships were unlikely to cause the regime to be overthrown. Therefore we had to deal with the North Korean regime as it was, not as we would wish it to be. In dealing with North Korea, I recommended that the allies should establish two alternative strategies. If North Korea would forego its long-range missile program as well as its nuclear weapons program, the allies would move step-by-step to a comprehensive normalization of political and economic relations, including the establishment of a permanent peace. Alternatively, if North Korea did not demonstrate by their actions that they were willing to remove the threat, the allies agreed to take necessary actions to contain the threat. In May of 1999 I led an American delegation to Pyongyang to present those alternatives to the North Koreans, with the full backing of the Japanese and South Korean governments. During the talks, it was clear that North Korea was seriously interested in the positive alternative. They saw that this would open the path to economic development in North Korea, which they desperately needed. But they feared that the communication entailed in economic contact with the outside world would put at risk the closed society that has kept their regime in undisputed control of North Korea. So when our delegation left Pyongyang, we were not sure how North Korea would respond.

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But within a few months, we saw substantial evidence of a general thawing underway. South Korea and Japan each held first-ever summit meetings with North Korea. Kim Jong Il made a visit to the Shanghai Stock Exchange. Secretary Albright made an official visit to Pyongyang, where she met with North Korean senior officials, and invited Kim Jong Il to come to Washington. Kim Jong Il responded to that invitation by sending a senior emissary, Marshall Jo, to Washington, where he met with President Clinton. On his way to Washington, Marshall Jo stopped off at Stanford to consult with me about his upcoming meeting with the president. Based on my discussions with Marshall Jo, I believed that the United States was within a few months of getting the desired agreement from North Korea. But at that critical junction, the Bush administration took office in the United States. Two months after the inauguration, President Kim Dae Jung visited Washington for a confirmation that this engagement policy would continue. On his arrival, Secretary Powell vowed to continue the North Korea policy set by President Clinton. But the next day, when President Bush met with President Kim, Bush disowned the Clinton policy and said he would create a new policy. Engagement with North Korea was broken off, and for one and a half years, there was neither a dialog nor a new policy. Whatever policy might have originated was preempted by the discovery in 2002 that North Korea had undertaken to covertly start another nuclear program. And so began the fourth nuclear crisis with North Korea. The new program, at a covert location separate from Yongbyon, was based on highlyenriched uranium instead of plutonium. In September 2002, Assistant Secretary Kelly went to Pyongyang and confronted the North with our findings. They at first denied the existence of the uranium program, then became defiant and said that it was necessary because of our hostile attitude. As this new crisis unfolded, Dr. Carter and I wrote an op-ed piece urging the administration to deal with this emerging program in uranium, but not to abort the Agreed Framework, since this would allow the North Koreans to restart their plutonium program, which was far more dangerous and certainly more imminent than the new Uranium program. Nevertheless, a few months after Kelly’s visit to Pyongyang, the Bush administration cut off the fuel oil they had been supplying under the Agreed Framework, and persuaded Japan and South Korea to stop work on the reactor called for under the Agreed Framework. North Korea, in response to this cutoff, ejected the inspectors at Yongbyon, reopened their reactor, and announced they were starting to reprocess the fuel rods. The United States, which had in 1994 made reprocessing a “red line,” chose not to establish any red lines and the reprocessing proceeded. For the next nine months the United States and North Korea were at an essential standoff, with no real dialog and with North Korea continuing to operate their facilities at Yongbyon. During this period, China became increasingly concerned and pressured North Korea to participate in multilateral meetings. As a result, there have been five meetings in Beijing, the last four involving six parties (United States, North Korea, China, Russia, Japan, and South Korea). The first three meetings in Beijing, all in the first term of the Bush administration, made no apparent progress. The fourth meeting, held in September 2005 by our new negotiator, Ambassador Chris Hill, resulted in an understanding. The essence of the understanding was: North Korea said that they were prepared to give up their nuclear weapons; The United States said that it was prepared to pledge not to initiate military force to overthrow the North Korean regime; and All sides agreed that North Korea was entitled to have a peaceful nuclear program. But the day after the meeting concluded,

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there were conflicting reports from Pyongyang and Washington as to what the third component of the understanding really said. Washington said that full disarmament had to be the first step; only then would they “consider” North Korea’s request for a light-water reactor. Pyongyang says that the light-water reactor must be agreed to before any disarmament begins. Thus there was a fundamental misunderstanding about the “understanding.”In the meantime, the North Korean nuclear program moved ahead at full speed. Unlike the faulty intelligence information the United States had on Iraq before the Iraq War, we had substantial and solid information about North Korea’s plutonium- based weapon program. My assessment of their status as of last June was as follows: It was certain that they had the fuel for making about 8 nuclear bombs; It was highly probable that this fuel had been reprocessed to make plutonium; It was highly probable that the resulting plutonium had already been used to make some or all of the bombs; It was likely that North Korea would conduct tests with some of these bombs; and It was certain that North Korea had restarted their research reactor at Yongbyon to produce more plutonium. We had much less confidence in information about their uranium-based weapon program: American government officials have said that North Korea has a covert weapons program based on highly-enriched uranium. North Korea says they do not. A Pakistani scientist says that he gave technology and materials to North Korea for a highly-enriched uranium program. Libya reports that they have bought material and equipment for a highly-enriched uranium program from North Korea. A reasonable conclusion was that North Korea did have a highlyenriched uranium program, but that it was probably not close to production. In sum, the evidence in June was strong that North Korea was well embarked in building a sizable nuclear arsenal. Given this background, the report in late June that North Korea was preparing to test an ICBM was particularly ominous. Dr. Carter and I were sufficiently concerned that we wrote an op-ed piece for the Washington Post. Our op-ed recommended that the United States take a very hard line with the North Koreans, telling them to take the ICBM off the launch pad and return it to their storage area or the United States would destroy it. Of course, we did not really want to have to carry out such an attack. We hoped that the op-ed would cause the parties involved to realize how serious the situation had become. That it would stimulate China to get serious about real pressure on North Korea; that it would stimulate North Korea to stop playing at brinksmanship; and that it would stimulate the United States to get serious about negotiating with North Korea. Instead the administration responded to the North Korean preparations with a press statement that they would consider the launch of an ICBM as “unacceptable.” North Korea launched the ICBM. To add insult to injury, they launched it on the 4th of July, and added to their fireworks display the launch of 4 medium- range missiles. The administration then released another press statement deploring the action. And so the fifth nuclear crisis began in 2006, right on schedule. Late in September we saw activity underway in North Korea indicating that a nuclear test was in preparation. The administration again warned that such a test would be unacceptable. The Chinese government sent an envoy to North Korea to urge them not to conduct the test. The United Nations released a resolution demanding that North Korea not conduct the test. On 6 October, North Korea conducted a nuclear bomb test. It was low yield, so it is reasonable to conclude that it was not a complete success, but it was a nuclear bomb, fueled by plutonium. On the basis of that test and certain other information, I revised my estimate of

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North Korea’s nuclear capability. My October estimate is similar to the estimate I made in June, except that the word “likely” is replaced by the word “certain.” Shortly after the nuclear test I wrote another op-ed for the Washington Post. I pointed out that because of past inactions on the part of the United States and the international community, there were no attractive options left for stopping North Korea from having a meaningful nuclear capability. In sum, I believe that we are in a very deep hole today with North Korea. So how should we proceed—is there a way we can dig out of that hole? Of course we would like North Korea to roll back their entire program, but it will be very hard to get North Korea to give up a capability they already have. But we should be able to formulate a strategy whose minimum objective it to keep the problem from getting worse, with a primary focus on two future dangers. The first danger is that North Korea will sell some of their bombs or plutonium to a third party. The administration established some years ago an international initiative (Proliferation Security Initiative) designed to prevent the illegal transfer of nuclear material. This is a good program, but we should never believe that it has a high probability of preventing an experienced smuggler like North Korea from transferring enough plutonium to make a bomb, which is about the size of a grapefruit. To deal with the danger of selling nuclear material, the United States should issue a statement warning North Korea of the grave consequences to North Korea if a North Korean bomb is detonated in the United States, Japan, or South Korea, whether the bomb is delivered by North Korea or a third party. The statement should be as unambiguous as the one Kennedy made at the time of the Cuban missile crisis. The second danger is that North Korea will finish work on their large reactor, which would give them the capability of making about 10 nuclear bombs a year. We should be prepared to take coercive actions to keep that from happening. The best venue for coercive diplomacy would be the 6-party talks. But we have spent more than three years in those talks with no results, so the talks are a necessary but not a sufficient condition for success. Indeed, the most recent 6-party talks were held last month with no apparent progress. The United States should go back to these talks with a viable negotiating strategy, which includes a credible coercive element, and which includes significant buy- in from the other parties. The most feasible form of coercion could come from the Chinese and South Koreans, who could threaten to cut off their supply of grain and fuel oil if North Korea does not stop work on the large reactor. This alternative has always been resisted by China and South Korea. But the danger of the North Korean nuclear program is by now obvious to them and they should now be willing to join the United States in a concerted diplomatic initiative. An additional inducement for China and South Korea would be the concern that if they did not provide the coercion, the United States might take the only meaningful coercive action available to it—destroying the reactor before it could come on line. Clearly, this is a dangerous alternative. If China and South Korea do not agree to applying coercion, the United States may be forced to military action which, while it certainly would be successful, could lead to dangerous unintended consequences. But in fact there are no alternatives left that are not dangerous. And allowing North Korea to move ahead with a robust program that is building ten nuclear bombs a year could prove to be even more dangerous than exercising coercive diplomacy. We desperately need to get serious negotiations underway with North Korea. And all of our negotiating experience with North Korea tells us that success depends on the diplomacy being backed with a credible threat of force.

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If the United States and the concerned regional powers prove to be willing to cooperate in applying meaningful coercive diplomacy, we still could contain this danger. And if we did, our children and our grandchildren would thank us. Chairman Lantos. Thank you very much, Secretary Perry. Ambassador Lilley.

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STATEMENT OF THE HONORABLE JAMES LILLEY, FORMER UNITED STATES AMBASSADOR TO SOUTH KOREA Mr. Lilley. Thank you. I am going to take a slightly different tack on this. If you have North Korea, with one-thirtieth of the economic strength of South Korea and half the population, and if that state is surrounded by three successful powers, economically and militarily, Japan, South Korea, and China, and if we are backing them, it seems to me that the tides of history are on our side, not on theirs, and it seems to me, too, that over the past 10 years, we have been working hard to get cohesion with our friends and allies in the area to bring effective pressure to bear on North Korea to change its behavior. What do I mean by that? Well, first of all, Sun Tzu, the old Chinese strategist, said, “If you get involved with one of these things, know your enemy, know your opposite number.” What is North Korea up to, in stark terms? Survive, remain in power, keep an iron grip on the people, and we know from high defector reports that Kim Jong Il is a control freak, number one. Number two, he is trying to help win an election for himself by backing the ruling party in South Korea and a possible trip by Kim Jong Il to South Korea to buoy up the existing party. So far, that has backfired on him in South Korea. He wants to exploit what they perceive as widespread anti-Americanism. They are attempting to exploit U.S./ROK differences, and they are going to play the nationalist theme. That is obvious. We know that. I think they are also going to try to get former President Clinton to North Korea after the United States 2008 elections and try to get back to the two light-water reactors and food and oil, the 500,000 tons of heavy oil a year and perhaps several hundred million dollars of food aid, largely unmonitored. They are going to make enough short-term concessions to keep food, energy, money coming in, principally from South Korea and China. They are going to try to split five-power cohesion, pointing the finger at United States as the cause of tension. The trend of policy in North Korea has evolved from a massive military intervention in 1950, through frequent terrorist threats and actions, to its current strategy. What have they tried to do in the past? Let us look at it briefly. In 1968, they tried to send a team in to assassinate President Park Chung-hi. It failed. In the 1970s, they built tunnels under the DMZ. They failed. In 1983, they tried to kill the South Korean cabinet in Rangoon. Half of them got killed; half of them did not. In the 1990s, they started their submarine infiltrations into the South, and their first submarine hit a reef. The infiltration team fled onto shore, and all committed suicide. My friend in the Center of Naval Analysis said, “Bad seamanship, strong morale.”Now, a tactical change is taking place with this focus on weapons of mass destruction. Their threat of proliferation is a more effective

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means to survive but still is single-minded on their part. It is quite clear they are going to try to keep their nuclear weapons, to the extent they can. They have, however, been forced into ostensible economic reforms, and we note that, in their New Year’s address this year, 2007, they stress economic first over their fascination with putting the military first. This has led to unexpected consequences for them: The flourishing of the Gaesong Industrial Zone, with a number of Korean companies pushing in there, hiring North Korean labor, setting up factories, expanding their presence, expanding into the whole area. We know for a fact, and I know this certainly personally, that this is the way China changed economically. It is starting in North Korea. Inchon Airport, if you have been there, Mr. Chairman, I am sure, it is one of the best airports in the world. It makes JFK look like something in Indonesia in 1957. It is there sitting right next to the border, the DMZ. It is obviously a force of history. If you have gone through that North Korean airport, Pyongyang, it could fit into one-fiftieth of the Inchon airport. That is a trend. You see increasing Chinese trade relations in North Korea. They are all over the place, businesses flowing in. They are setting up a glass factory. They are everywhere. It is increasing, much to South Korea’s concern, and we also see growing consumer goods availability in North Korea for the elite class. Going into the other powers, we all know that a fragile but aggressive North Korea, if it implodes, has negative consequences for its neighbors. I think this is particularly appreciated in Peking. Millions of refugees flowing into Russia, South Korea, and China are going to cause great consternation all over the area. A unified Korea, under Seoul, allied with the United States is a nightmare for China, certainly. To have these horrible warlords— Kim Jong Il is one thing—those stone-faced men that sit there with medals from their neck to their groin, if they get their hands on nukes, you have got a real problem. But you have to realize, in dealing with this problem, that China has long, intimate, intense relationships with the Korean Peninsula including North Korea. One instance—I think we should pay attention to this because it is talked about as the “Northeast Project” in China. They have laid claim to the entire North Korean part of the peninsula, through what they say is Koguryo Dynasty discussions as part of China, debate. South Korea says, no such thing; that is our Korean dynasty. The South Koreans know, and we who follow China know, that it is allegory and it made a lot of sense in the Cultural Revolution and other times, that when they start using allegories, pay attention because what they are saying is that this territory, by definition, belongs to us: [A] if you collapse, we move in, with justification. That really is a shot across the bow. Chinese involvement in the Imjin defeat in 1596 of the Japanese invasion by Hideyoshi; the Chinese helped the South Koreans do it. The role of China in suppressing dissent on the Korean peninsula; they certainly did that, too, in the Tonghak rebellion. And China rescued North Korea in 1950. MacArthur had knocked them flat on their back. They were finished. Kim Il Sung was sitting up there on a mountain top with his medals on, trying to give orders. Nobody paid any attention to him. China came in and bailed them out. North Korea has not shown one ounce of gratitude for this. China tried to help set up free trade zones in North Korea, in Sinuiju up on their border, and they moved it down to Gaesong, and the Chinese, I think, breathed a tremendous sigh of

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relief because Chinese Premier Zhu Rongji had gone to Kim Il Sung and said, Do not put it here. The Chinese knew very clearly who the North Koreans were going to pick: Yang Bin, who is in a Chinese jail for 17 years on corruption. In Sinuiju it would turn out to be a center of prostitution, drugs, counterfeiting, everything else, and China helped push it over to Gaesong. I do give you here two, I would say, illustrative examples of differing authoritative opinions in China. One, Shen Dingli comes out and says, North Korea is an essential buffer zone to China, and we need it to offset the Americans if there is a crisis in the Taiwan Strait. He says that right out. The second Chinese, Zhu Feng, comes in and says, It is far less of a strategic buffer zone than it was in the past. If sanctions do not move North Korea, China will use a variety of means to accomplish this goal, including coercive diplomacy and perhaps, ultimately, regime transformation. All I am saying is, in China, and I found this out when I was there in 2004, there is a propagandistic level where they talk, and this is very depressing to hear, the problems in the Korean peninsula started with American involvement in the Korean Civil War, and goes downhill from that. If you get to the second level, you hear people talking very frankly about North Korea. Americans, you do not lecture us on it. We know better than you what they are like. And, third, if you talk to some of the military people, you get a sense that they will not stand still for a North Korea really trying to create instability by going to the missile and nuclear business in a series of tests. I would like to point out to you that, given the North Korean intentions, the Six-Party Talks are a nightmare for them. They have in fact provoked the increasing cooperation among the other five powers, especially after their nuclear and missile tests, and the U.N. resolutions, with Chinese and Russian support. This was never done before, this was the first time. China has moved troops to the North Korean border. They have inspected vehicles going to North Korea. They have shut down some of the North Korean bank accounts. That is just the beginning of what they have done. South Korea has suspended fertilizer and food shipments. The revenue from the Macau bank is suspended, which hits the North Korean elites. We are trying to stop, of course, the narcotics and counterfeiting. And ASEAN has kicked in again, telling North Korea—this is the Association of Southeast Asian Nations—to stop the nuclear program, and even Vietnam, where the South Koreans worked with us in the Vietnam War, has come in and started to put sanctions on North Korean banks. The above actions lead to a loss of face and sustenance in North Korea. They have turned, as you pointed out, to a highly enriched uranium program. We have put restrictions on the Macau bank. But we know the North Koreans’ reaction to these actions. We cannot be jerked around by what they are doing. The latest speeches they make, what they are building and their nuclear weapons; these are important, but we cannot let them take the initiative on this. They will resort to their standard practice of signing agreements, then adding conditions, and then blaming the other side for the breakdown. This is standard. We have looked at their negotiating tactics for 50 years. That is the way they act, no surprise.

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North Korea is also seeking to find fellow travelers: United Front work. Support and create a new generation of Korean-oriented Edgar Snows to explain to the West what North Korea really is, and most of it is bunk. But I still insist, the accumulation experiences and attitudes indicate that the North Korean extreme, sudden violence has been curtailed and that economic reform is eating into their system. They are beginning to pay a price right now for their behavior, and it is hurting them. One tendency is to go all the way and force our hand by carrying out the nuclear tests. The other one is react to this accumulation of pressures and leverage on them. I think it is very important that the United States be careful in what it says on this issue because we never want to get on the wrong side of the unification issue. I have had this argument many times with the South Koreans. They said that Rusk and Bonesteel divided Korea at the 38th parallel in 1945, and that was the essence of the problem. I pointed out that many, many Americans died in 1950 trying to unify that country. The conversation stopped. But I think, basically, there is a trade-off among the powers now in terms of what we are trying to get done in North Korea. Counterproliferation. As Secretary Perry points out, this is our number one concern, that they put those weapons in the hands of the crazies, al-Qaeda, et cetera. What we have to do is to get our friends and allies, and the Chinese have come along two-thirds of the way on this, and the South Koreans perhaps half, to work with us to stop proliferation in the Proliferation Security Initiative, but also in other ways: Inspecting their cargoes, alerting people on intelligence if we get a tip off, boarding the ships if you have to, checking them as they go through China, in air and land. I think we have got this moving. But the purpose in all of this would be to allow South Korea and China the opportunity to carry out what they might consider the transformation of the regime through policies which they believe can lead to economic influence and seduction of the North Korean state; ergo, they are looking for more time; we are looking for immediate action. That is a negotiator’s challenge, and we have come a long way in pulling together on this thing and beginning to get countries to work together. I think our indications are that we are going to try to transform the policies, if not the system, while recognizing that North Korea will fight relentlessly to get the goods but keep our contamination out and stage spectaculars to grab world attention. We find this to be true, but we also find to be true, if you examine the track record of what the North Koreans did under Kim Il Sung and what they did under Kim Jong Il, there is a difference. They tend to be somewhat more cautious now, in terms of what they do. Kim Il Sung would shoot down a KC–135. He would seize the PUEBLO. He would carry out axe murders in the DMZ in 1976. He would do these things. You find a hesitation now to get involved that deeply. Kim Jong Il does not seem ready to take those chances, and I think it is the accumulation of pressures on him, where he knows that he is going to be forced to give his people a better deal. Finally, I will just indulge myself in quoting one of the great passages in the Bible, John 8:32: “And you shall know the truth and the truth shall make you free.” It is emblazoned on the wall of the CIA, where I worked for a number of years, and I wish they took it more literally. The North Korean version of this is keep the truth out, and you can survive unfree. Thank you. [The prepared statement of Mr. Lilley follows:]

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Chairman Lantos. Thank you very much, Secretary Perry and Ambassador Lilley. You have both given us tremendous insight and analytical prowess, and we are all grateful to you. Let me begin by asking both of you basically the same question. In various forums, you have both been advocating effective coercive diplomacy, and that surely is the preferred option for all of us. Now, during my various visits to North Korea, I had as my goal, modest as it was, to urge the North Koreans to return to the Six- Party Talks, and while I certainly do not claim credit for their having done so, unless they return to the Six-Party Talks, it is very unlikely we will get much action, and now they are back at the Six- Party Talks. What specific steps can the various players in the Six-Party Talks take to bring about a policy change in North Korea? Clearly, neither Japan nor Russia nor we have enough leverage to bring about significant change; only the South Koreans and the Chinese do. Since they clearly have not done so in the past, I would be grateful if each of you would address the reasons why the Chinese and the South Koreans have not taken the effective measures that are within their capability, and what policies should we pursue to persuade Beijing and Seoul to move in the direction of effective coercive diplomacy vis-à-vis Pyongyang. Secretary Perry? Mr. Perry. I think the most effective coercive element in the negotiations comes from the Chinese and the South Koreans, where they have to threaten to stop the shipment of oil and

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grain. This would be huge, huge factor with North Korea. As I indicate in my testimony, they have so far refused to do this, but I do believe that the North Korean behavior in actually testing the nuclear bomb might have put a new element, a newer thinking about this, in China and South Korea. So I would return to China and South Korea and lay this on them very heavily, that they must provide that coercive element. Those are the sticks that one of your members was asking about. The carrots can come primarily from South Korea and Japan, the economic carrots, because they have the interest and the wherewithal to help North Korea develop economically. The one carrot incentive that the United States can provide is an agreement, on certain conditions, not to use our military to overthrow their regime. This, in fact, was one of the things we promised to them at the September 2005 discussions. Also, we can offer to turn the armistice into a peace agreement, and that, from our point of view, would be a desirable thing to do anyway. So those, I think, are the elements we have at our hands that ought to be on the table in the negotiations. Chairman Lantos. Ambassador Lilley? Mr. Lilley. Tracking what the Chinese have done to bring their own type of pressure on North Korea. It is not our type of pressure; it is their type because they do not trust our tactics or techniques, and it seems to me there is something going on there because the North Koreans are very difficult bargainers. The Chinese have found this out. If they, in fact, Chinese, cut the grain supplies to North Korea, the North Korea answer is, You can feed our people in China, or you can feed them in North Korea. Take your choice. And then they probably get another 500,000 tons of grain. My indications are there has been movement, both by South Korea and China. As far as I know, South Korea has not resumed the fertilizer and rice shipments, and what the North Koreans have done to the South Koreans is to say to them, That great emotional factor in your existence is the reunification of families. If you want that, and we have suspended it all, resume the fertilizer sales. That is bargaining from the North. That is the way they bargain. So it seems to me, the fact that they are doing this indicates that something is happening. I think, also, the element of giving the North Koreans enough delay on our aid plays into the psychological aspects of, let us say, China’s support for them, and we can bring up the Koguryo Dynasty problem, which is a shot across their bow, as opposed to their so-called treaty that they have now, it puts the whole relationship in question. I think, also, the United Nations’ sanctions that came out of the resolutions that were passed cut back on any trade that is related in any way with the North Korea military program. This is a way to develop pressures on them. My whole point of what I was saying was that the North Korea position, horrible as it is, has evolved. They have been obliged to adopt different methods to get what they want. Do not give up on it now. Do not tell the Chinese that they have to cut off all of the grain, or the South Koreans. They will not pay any attention to us because the South Koreans are convinced that the way to bring about a successful outcome to the situation in North Korea is to influence them through economic seduction. We know them much better than you do, they tell us. We have had thousands of meetings with them in the Korean language. We know where their weaknesses are, and their weaknesses are in their economic vulnerability, and when that point comes when we have a

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large presence there in North Korea, those weapons will be taken and thrown into the Pacific Ocean. That will be the outcome, and that is the solution. The Chinese, of course, have a much more complicated position. They want to retain their influence on the peninsula, but they do not back losers. They are into South Korea, as you know, up to here: Largest trading partner, a number of things they are doing in South Korea which indicate a movement there where the Chinese are shifting more and more of their emphasis to South Korea and away from North Korea. North Korea is a liability; South Korea is an asset. Watch this process. This is not coercive diplomacy; this is longterm leverage over North Korea, and North Korea, I believe, gets the point. Mr. Ackerman. Mr. Chairman, may I comment? Chairman Lantos. Please. Mr. Ackerman. I fully agree with Ambassador Lilley’s emphasis on the economic absorption of North Korea. I think that is the longterm strategy which we should be pursuing. I do not think that helps with the short term and the nuclear weapon program, and I do believe, in the short term, to deal with the nuclear weapon program, we need to have an effective coercive strategy beyond that. Chairman Lantos. Well, pursuing that for just another minute, recently, we had a very high-level, United States cabinet delegation go to Beijing, which, in my judgment, was spectacularly unsuccessful. The Chinese ambassador visited with me not long ago, and I pointed out this fact to him, and I indicated that we expect our Chinese counterparts to deal with the matters that are of vital interest to United States national security interests, namely, their proposed $16 billion investment in Iran and the nuclear program in North Korea. What mechanism would both of you find useful in persuading our Chinese and North Korean counterparts to take more effective action? Mr. Perry. I think I would offer two unrelated points. First of all, in order to persuade them, over the near term, to take coercive action relative to the nuclear program, we have to convince them that the nuclear program is a threat to them as much as it is to us. Chairman Lantos. Do they so consider it now? Mr. Perry. I think they can believe that. I think they understand that. So I think that is probably doable. But, secondly, I think, quite aside from the nuclear issue, the United States should be seeking to work cooperatively with China in the development of energy. Both the United States and China are heavy users of energy. Both of us have a shortage of energy, and we are going to end up competing in the world markets for energy unless we can find a way of cooperating. And I think there is a very good basis for cooperating with China in that regard, in that we have the technology to help develop alternative energy supplies, and they have the need for them. So I think there are possibilities of working in cooperation with China in that regard. Chairman Lantos. Ambassador Lilley, would you like to add something? Mr. Lilley. I think Secretary Perry made a point: The South Korean long-term absorption of North Korea does not take care of our immediate problem. What I am proposing is that there is a tradeoff here between our acceptance of their techniques of absorbing the North and their cooperation with us on the PSI and other matters. All I can say is my sources indicate that that is taking place. It is not taking place in the Chinese joining the PSI Initiative or the South Koreans openly interdicting their ships but it is happening.

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Chairman Lantos. A few days ago, this committee held a hearing on Iran, and the witnesses were Secretary Tom Pickering and former CIA Director Jim Woolsey, and we had a very useful dialogue about a proposal of establishing an international entity that would provide nuclear fuel and reprocessing to any country, guaranteeing that the supply is steady and preventing the need for each country developing its own enrichment and reprocessing facilities. Since both of you are knowledgeable in this field, may I ask you, Dr. Perry, to comment on this proposal? Mr. Perry. I think this is an excellent proposal. I believe that the international entity for supplying nuclear fuel, relative to Iran, is a necessary condition for curtailing Iran’s nuclear program. It is not a sufficient condition. It does not scratch all of their itches, but it does take away their excuse, coming into this program. So I think we should do that, but we should not believe that that will be sufficient. Chairman Lantos. Ambassador Lilley? Mr. Lilley. I think that it is a good program. It is a good conceptual idea. I just do not think the North Koreans will play ball, no. Let me just make another point, though. I think, basically, this trade-off, what I am talking about is to seek South Korean and Chinese and Japanese and Russian cooperation in neutralizing the military capabilities of North Korea in proliferation in return for allowing them the chance to transform North Korea. That is the deal. Chairman Lantos. Thank you very much. Congresswoman Ileana Ros-Lehtinen. Ms. Ros-Lehtinen. Thank you so much, Mr. Chairman, and thank you, panelists, for excellent testimony. Secretary Perry and Ambassador Lilley as well, how can we call the Agreed Framework a success or anything remotely successful? At the very time that Secretary Albright was meeting with the Dear Leader in Pyongyang, the North Koreans were enriching under her very nose. During the Clinton administration’s implementation of the Agreed Framework, North Korea was trading its missile technology with AQ Khan for highly enriched uranium technology, at that same time. I believe that it is a revisionist view of history to label the Clinton administration’s North Korea policy as anything but a failure, a disaster. In 1994, North Korea pledged to freeze its nuclear program in exchange for international assistance to build its nuclear reactors. Four years later, North Korea fired a missile into the Pacific Ocean in 1998. The response from the Clinton administration was to essentially reward North Korea for its behavior by engaging in high-level talks and, in September 1999, easing sanctions against this rogue regime. The one lesson I believe that was learned from North Korea from this exchange is that it could blackmail the international community and the United States into concession. Many would argue that Iran has similarly learned this lesson well and has adopted the same approach. The chairman used a great phrase that I would apply in a different way. I think that the Clinton administration’s North Korea Doctrine has been spectacularly unsuccessful. I would like for you to comment on that, and I am just going to string them together, Mr. Chairman, if I might. On the issue of human rights, when Jimmy Carter went to North Korea in 1994 and met with Kim Il Sung, he talked about nuclear issues but said not one word about the gulags, the massive human rights violations. Jimmy Carter, as we know, is known far and wide as the human rights President, and he criticized South Korea’s human rights program vigorously

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during his administration but said not one word about the suffering of the North Korean people and who was responsible for that suffering, nor did Secretary Albright make this a priority issue when she visited Pyongyang. So why was the Clinton administration silent about the greatest human rights tragedy in Asia since Pol Pot? And, lastly, on the China issue, we have repeatedly gone to Beijing, asking for its help regarding North Korea. The Chinese always say that they are doing all they can, but there is very little result. However, when China, which is North Korea’s only ally and the conduit for most of its energy and food, wants something, it has no problem using its leverage, including cutting off oil to North Korea, with immediate results. Why is China jerking us around in this manner? Do they want a resolution, or do they benefit from having the United States bogged down in a crisis that we cannot resolve but which keeps us coming back to Beijing with hat in hand over and over again? Lastly, Secretary Perry, you had mentioned the op-eds that you had written some months ago, one of them advocating a possible surgical strike on North Korea’s nuclear missile. You said: “If North Korea persists in its launch preparations, the United States should immediately make clear its intention to strike and destroy the North Korean Taepodong missile before it can be launched. This could be accomplished, for example, by a cruise missile launched from a submarine carrying a high-explosive warhead. The blast would be similar to the one that killed terrorist leader Abu Musab al-Zarkawi in Iraq, but the effect on the Taepodong would be devastating.”Do you still hold those feelings, as you were pointing out in your statement, and is a military strike on North Korea’s nuclear facility feasible? Do we have enough information about their capacity and the facilities to be able to destroy them with great confidence? Thank you, Mr. Chairman. Mr. Perry. Let me comment on the several different issues you raised, Congresswoman, and, first of all, the Agreed Framework. The Agreed Framework, in my judgment, in no way solved all of our problems with North Korea. It did not solve, or even address, the human rights problem. It did not solve the counterfeiting problem. It did not cause North Korea to give up its nuclear aspirations. All of those things you can say flat out. All that it did, all that it did, was it stopped North Korea from building 50 to 100 nuclear bombs between 1994 and 2002. That is probably worth having, though. In addition to that, with the absence of an Agreed Framework in the last few years, they have built six nuclear bombs, and they have restarted a reactor which could allow them to build 10 nuclear bombs a year. So the Agreed Framework focused on this one problem, and on that problem, it did pretty well. It did not have any effect at all on other problems which we care a lot about. On the Chinese, in my judgment, the Chinese are not doing all that they can. I am puzzled about that. My own rationalization of that is that the Chinese agree with us and concur with us that they want no nuclear weapons on the Korean peninsula, but they totally disagree with us on how to achieve that. In particular, they are fearful of a regime collapse in North Korea, which would cause hundreds of thousands, or even millions, of refugees to flow into North Korea.

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So we have different goals, I think, in the negotiation. If we could find some way of getting a concurrence with the Chinese on what our goals are, we might be able to get some agreement on how to apply the right kind of diplomatic pressure. Ambassador Lilley? Mr. Lilley. I heard, at the National Press Club last month, a highly experienced, technical man who—— Chairman Lantos. Could you pull the mike a little closer? Mr. Lilley [continuing]. Who was just in North Korea, and he says the 50-megawatt reactor is a mess. It is in terrible shape, and thought that they could probably produce no more than one nuclear bomb a year. This is one man’s opinion, but a very experienced man who knows these things a lot better than I do. My sense is, with the Chinese, you go along with them, but you have got means to cause them some problems. We know where they are sensitive. You could do these things, but you have to be fairly subtle about it, and whatever they are achieving in North Korea, you have got to watch for the specific actions that North Korea takes. Now, again, you had the nuclear test, but, look, that nuclear test was not a very successful one, and the first missile they tried blew up in the sky. It is disturbing that they are doing this, but look carefully at the limitations of these guys. How much of it is bravado? How much is it really a bargaining technique to get you to come around because that technique works? When you use blackmail of this kind, we come through with goods and various things, and I think they are trying to do that now. But you have got to get to the bottom of their capabilities and not make broad assumptions about what they can do because they have very serious limitations on their capabilities. I think, basically, these are increasing. Chairman Lantos. Mr. Ackerman. Mr. Ackerman. Thank you, Mr. Chairman. I cannot help but be amused when some of our colleagues criticize us for being too partisan in trying to deal with the failures of the administration, which we have now, and then spend so much time going back to blaming everything on Bill Clinton and Jimmy Carter and Madeleine Albright, and maybe we should take a look at what Herbert Hoover did about this. I was curious about my friend from California, whose position I would like to flesh out with our witnesses. Chairman Lantos. Which friend are you referring to? Mr. Ackerman. My very good friend—thank you for the clarification—whose approach is a legitimate approach. It is basically starve them out. Why should we give them anything? Do not give them any food, oil, or anything else, and do not help them. Knowing of Ronald Reagan’s point of view that food and humanitarian aid should never be used as a political weapon, I was just wondering if my friend, when he was Reagan’s writer in the White House, penned those lines for him, but we will deal with that later. I was in Pyongyang. It was 1994, in October. I met with Kim Il Sung, discussed at great length the switching of the heavy to the light water reactor, an international group paying for the costs, and somebody supplying oil while the thing changed and turned around, and he was very receptive. It was disappointing to me that when I returned, the Clinton administration did not accept that as real, and it was not until several months later, on Jimmy Carter’s visit, and I am the last one to defend Jimmy Carter these days, that he announced right after the meeting very publicly what then became the Framework Agreement.

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When the Republicans came in, as Dr. Perry pointed out, and I am going to ask him the question, the administration walked away from the talks and the table and thought that hating Bill Clinton was a substitute for foreign policy and came up with nothing else. After listening to the criticism of the Clinton administration’s policy that my colleague from Florida described as a total failure, could you tell us, if that policy was not in place, how many weapons, nuclear weapons, the North Koreans would have today? Mr. Perry. If the North Koreans had operated their facilities according to the plan that they had already laid out, and if we had done nothing about it, between 1994 and 2002, they could have built somewhere between 50 and 100 nuclear bombs. Mr. Ackerman. So you would consider that policy, while it was in effect, a success or an abject failure? Mr. Perry. That was the benefit of the Agreed Framework. As I said, there were many other things they might have done that they did not do, but it did stop them from building 50 to 100 nuclear bombs, which was no small accomplishment. Mr. Ackerman. How do we better engage the Chinese, who seem to have much more leverage and levers than do we, to convince them what is in their national interest? You point out, and this is the question that comes back to what Mr. Rohrabacher was advocating, it is in the Chinese interests to make sure that the North Koreans remain in North Korea rather than go to China, the theory of implosion rather than explosion. If we did take the hard line and said, Nothing more from the United States, no more humanitarian aid, if that became our policy, what do the Chinese do? Do they just fill the void, or do they try to change North Korea’s policy so that the rest of the world is engaged as well? Mr. Perry. I think probably the Chinese would fill the void, and the real question is, what can we do to get the Chinese on the same negotiating track that we are on in dealing with North Korea? That is the big issue. If we and the Chinese can agree on how to approach North Korea, I think we could be successful. Mr. Ackerman. Ambassador Lilley, do you agree with that? How do we better engage them? Mr. Lilley. Let me come to the defense of Herbert Hoover. He was not an ideal President, but he was one of the most effective aid administrators we ever had. When he went into the Ukraine during the period of horrible Soviet starvation, he laid down the rules for the Soviet Union. He said, “I will monitor the whole thing. You are not going to put the party in here. I am going to go all the way to the bottom on this,” and he conducted a program that probably saved 5 million Ukrainian lives but he got Stalin. I will not play mathematical games with you in terms of human lives, but if you do something successful, as he did, you get unintended consequences. As far as the Chinese are concerned, as I pointed out, they have taken a number of actions, that they are split on this issue, that they tend to move more in the direction of being a responsible stakeholder. We are beginning to see that happening. Chairman Lantos. Thank you very much. Mr. Rohrabacher. Mr. Rohrabacher. Thank you, and thank you, Mr. Ackerman, for highlighting my questions. Let me note that I was working for President Reagan when he took a position on food in relationship to basically hostile countries. Let me note that he never advocated us sending food aid to countries that were hostile to the United States and democracies. The reference you are talking about dealt with Ronald Reagan’s belief that we should be willing to

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sell food to anyone, including hostile powers, because if you sell it to them, they are using their hard currency for food rather than using their hard currency to develop weapons systems, and that is a huge distinction that we should be aware of here. If we were not providing food freely to the North Koreans, they would have to use their hard currency for something other than developing nuclear weapons. Now, my researchers have shown me the statistics, and we seem to have provided over $1 billion worth of medical, food, and energy assistance to the North Korean Government in a 10-year period. That is $1 billion that they have now that is available to produce nuclear weapons and to stabilize their control over their population. This makes no sense to me at all, and in the testimony that we have heard today, and let me compliment the chairman again, we have had such high-level people here, and I know you are setting a precedent, and I have gotten a lot out of your testimony, and I am going to ask a couple of, you know, probing questions, but do not think that I did not appreciate the expertise that we have just had and have benefitted from it, because I have. But it just seems to be aversion among both of you to the idea that North Korea, this horrible, brutal dictatorship, might implode, and I will tell you, I think it would have been a very good idea to let the Soviet Union, under Joseph Stalin, implode rather than have fed his people. I am sorry, but I disagree with Mr. Hoover at that time. Perhaps we could have sold Stalin food, sold it to him so that he would not have used his hard currency to set up the monstrous gulag regime and militaristic regime that he set up. But why is it that we have to fear that there is going to be some sort of dislocation going on in a short period of time on the North Korean peninsula? Do they not have a better chance for absorption by the South, or at least as great a chance, as they had in Germany, for example? It did take 10 years for Germany to absorb that, but that did not create havoc in Europe. In fact, I believe that the implosion of the Communist regimes in Europe has actually led to a great stride forward for humankind. So why is it so different in North Korea, especially with this cuckoo regime that threatens us with nuclear weapons? I just throw that out to you, either one. If neither one has a comment, I have more points to make. Mr. Lilley. What was the question? Mr. Rohrabacher. Why is there such an aversion to the implosion of the North Korean regime? Why is there such a fear that the dislocation will be so disruptive that the benefits of getting rid of that regime that now threatens to build nuclear weapons would not be offset by some of that, as compared to what happened in Eastern Europe when those regimes imploded, and now we have a better world? Mr. Lilley. First, I think you have different kinds of Communist-nationalist regimes in Eastern Europe and in Asia. The Asian regimes have what you might call authenticity. The Eastern Europeans did not. They were puppets of the Soviet Union. The Vietnamese, the Chinese, and the North Koreans have a very high sense of nationalism, which never existed in Eastern Europe. I think, second, implosion; I do not think we fear implosion. The people that really fear the implosion are South Korea and China. They are the ones that would have the real problem on that one. As I pointed out, millions of refugees, warlords with nukes, a unified Korea allied with the United States; these are not pleasant concepts for their neighbors. What we are using, the “in” word now is not “regime change” or “implosion”; it is “transformation.” Mr. Rohrabacher. Right.

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Mr. Lilley. Yes. Okay. “Transformation” means you are going to bring about, over time, changes in that regime’s policies, and if that does not work, in the people. Mr. Rohrabacher. My time is up, and let me just say, I have not seen any transformation. We have spent billions of dollars. The only thing I have seen—in China as well, by the way, I do not see any great liberalization going on in China. Let us note, behind the scenes—I disagree with both of you—behind the scenes, China is playing a much more villainous role in the development of nuclear weapons in North Korea than what we have heard today. Thank you very much, Mr. Chairman. Chairman Lantos. Thank you very much. Mr. Faleomavaega. Mr. Faleomavaega. Thank you, Mr. Chairman. It is always a difficult act for me to follow my good friend’s, the gentleman from California, line of questioning and his comments on our committee hearing, but I just wanted to ask a couple of questions. Secretary Perry, you did share with us your experience and involvement with the Agreed Framework that was established during the Clinton administration, and I am always trying to figure out the failures, as has been alluded to earlier by our colleague from Florida. I have always felt that it was a successful effort on the part of the Clinton administration. I do not want to point fingers, but I just wanted to ask, Mr. Secretary, not only preventing the North Koreans from building 50 to 100 nuclear bombs, but Secretary Albright was the first secretary of state ever to visit North Korea, even met with Kim Jong Il and all of that. Did you think that perhaps this was a greater success on the part of the Clinton administration to actually dialogue, people-topeople, even though we may disagree with the behavior, the type of leadership displayed by Kim Jong Il, the fact of the matter is there was a constant dialogue with the North Korean leaders, and was there an earnest effort made not only to prevent them from building nuclear bombs but getting into other aspects of establishing a better and closer relationship with North Korea? Mr. Perry. I believe that dialogue and economic cooperation are very important with North Korea because, over the long term, I agree with Ambassador Lilley that that is what could lead to the absorption of North Korea, which is the long-term solution to the problem there. But I must say that I think that the South Korea- North Korea dialogue and cooperation is more important than the North Korea-United States dialogue and cooperation, and I would hope that South Korea could to it and do it more effectively than they have done it recently. But I do think that that is the key to this long-term absorption. I would be interested in Ambassador Lilley’s comments on that. Mr. Lilley. I think, in South Korea’s case, they have been pillaged, colonized, raped by their neighbors for 1,000 years, and they have become a little bit pugnacious on the basis of that. The people from Cholla-Namdo are real good boxers, for instance. The sense of foreigners playing with them is always very much in their mind. The Japanese occupied them for 35 years. The Russians were in there. The Chinese were in there. Chairman LAnTOS. Could you get the mike a little closer, Ambassador Lilley? Mr. Lilley. Yes. So foreign powers are resented, and there is a sense in South Korea, they are really torn on this one. Their blood ties to the North are strong. They sing the same songs. They drink the same booze. They eat the same food. They like the same poetry. This is a strong tie, and we have been there a long time, and there is no question that the continued presence of a large military contingent causes social problems, and they have caused some serious social problems for us. But you have a very, in my experience, strong body of people in South Korea, including the President, that feel that the United States is

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indispensable to their future. But this does not mean they are going to follow our orders. It does not mean that at all, as it does in China. They do not follow us on these things. They do it their way. The thing that Chris Hill has done, I think, his real achievement, is to bring the powers together and get the Chinese to do what they can do, get the South Koreans to do what they can do, and we do what we can do. The result, I claim, although you had this nuclear test, and you had the missile test, is that, in the North Korean case, it is largely bravado, and they are beginning to have to make adjustments in their policy because of our policies, and I would not be discouraged by what we have done. I am not arguing the Agreed Framework was a total disaster. There are flaws in it, but it was all right in some ways. But we are now going into the next stage and support Chris Hill on this one. Mr. Faleomavaega. I just wanted to say that I think myself and two other of our colleagues were the first Members of Congress that went to Gaesong in North Korea, and I personally witnessed the tremendous potential there is on this North Korea-South Korea economic relationship, and I think it all means we should promote, and we should encourage the North Koreans and South Koreans to see if they can find some means where there is not only closer economic cooperation but the fact that they are the same people, and we should do all we can to promote that unification process for whatever it relates to. Not only politically, but as a people, they are the same people. Chairman Lantos. Thank you very much. Mr. Faleomavaega. I just want to say, from the South Korean leader, he said to me, “You know, the United States, you are our friends, but the North Koreans are our brothers.” I think that is the distinction there. Thank you, Mr. Chairman. Chairman Lantos. Thank you very much. Congresswoman Sheila Jackson Lee. Ms. Jackson Lee. Mr. Chairman, thank you very much, and, again, I would like to join my colleagues in thanking you for your leadership on both South and North Korea, your previous visits, and I look forward to the upcoming visit and the leadership of this committee that, I think, will offer a new direction in American foreign policy. Let me thank our distinguished witnesses for your service to this country, and we respect it greatly. I mentioned in my opening comments the military demarcation line. I continue to remind myself of that because now, for more than 50 years, the United States military, men and women from our neighborhoods and our communities, have been, if you will, on the dividing line between North and South Korea. That is something that deserves our commendation and respect, but it also, I believe, requires a serious focus on this moving target, North Korea and its leadership, and, of course, the sensitivity of South Korea. I believe that we cannot cease our involvement and, frankly, view the Iraq War as an enormous distraction from, I think, important business that had been started at the end of the Clinton administration. Secretary Perry, I would like to have you simply edify or educate us on any value that you could give to the terminology, “axis of evil,” and how far that took us in our interaction with South Korea and North Korea. Then I would like to ask, again, the question— I know you have answered it somewhat in many facets or many ways, but I watched Secretary Albright, at the end of the Clinton administration, engage, and no diplomacy is perfect. We

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have already defined North Korea’s methods. They have done it to every administration: Agreements made, agreements broken. It is not unique. But the idea is that we were engaged. Can you assess how far back we were taken by the immediate cessation of the talks that Secretary Albright had begun and was ongoing when the Bush administration came in? So if you would comment on the axis of evil, and where did we wind up after ending those talks when we were seemingly in the middle of some very productive discussions? Mr. Perry. To comment on a few of your points, in terms of the military demarcation line, we have our troops that are exposed in a very forward location for one reason, and that is because if the North Koreans were to attack, they could very, very quickly be in Seoul, which is half the population of South Korea, and our troops are there to help the South Koreans stop that attack before it gets to Seoul. Ms. Jackson Lee. And I do not disagree. I am saying, because they are there, we owe them a viable foreign policy with North and South Korea. Mr. Perry. You bet we do. I never agreed with the use of the term, “axis of evil.” I think it has not achieved any benefits for the United States and has caused us unnecessary problems. Ms. Jackson Lee. And the ending of the talks that Secretary Albright, at least, seemingly not picking those talks up immediately as the Bush administration took office. Mr. Perry. I always believe it is better to talk with countries that you have problems with, and the more you dislike the country, the bigger problems there are, the more reason you have to talk with them. I do not think we need to fear from talking as long as we go into those talks with a confidence in what we are trying to do and with strength. Ms. Jackson Lee. Ambassador Lilley, I understand this administration’s preference for Six-Party Talks. As I understand it, it is to, one, not give deference, respect, or status to North Korea, as well as the fact that North Korea has rebuked or, if you will, broken a number of previous agreements. It is to, in essence, make them behave. But is it not possible to engage in Six-Party Talks with the possibility of bilateral talks, prospectively or simultaneously? There are times when the Six-Party Talks are in order. I would like to say, humorously, China is in the mood, but there are times when they are not. I am delighted to hear that Secretary Hill may be en route. Can not we combine our approaches, particularly in this very difficult and tricky region of the world where we need stability, I think, most definitively? Mr. Lilley. Well, I think that is precisely what we are doing. We are contacting them bilaterally, and we are contacting them through the Six-Party framework. The fact that they are so concerned about the Six-Party framework, it seems to me, you must be doing something right, and I think that Chris Hill’s ability to pull the parties together and to get some sort of a cohesion on North Korea has caused them to really rethink what they are doing. Also, I go back, in my own experiences in Asia, that we had the coming of democracy to South Korea in 1987. I happened to be there. You do not get a democracy that is going to be your friend necessarily. You get a populous President who comes into his victory on an antiAmerican theme. Nevertheless, he is somebody we can deal with. I think, also, when you bring democracy to Taiwan, which we helped do, that you get somebody who is elected who pushes the course of independence, which causes our foreign policy people considerable grief. So a democracy itself is not the solution, but it certainly is the best process for politically running a country, as Churchill said, than all of the others.

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So, yes, of course, you are going to deal with them, but I do not think you want them to keep setting down the terms of your dealing with them. They say you must deal with us at an authoritative level, or you will not get anything done. Therefore, we will then deal with them on an authoritative level. You find out what they want, and then you use that as a bargaining tool to get them to give you things that you want. You do not just give it to them and move on it. I agree with Secretary Perry that this process of dealing with your enemy is a process that can work and has worked for us in the past, but do not get wrapped around this business of you have got to have high-level, bilateral talks with North Korea, or nothing is going to happen. The real factors that make things happen are the squeeze you put on them, the psychological, economic pressures, the infiltration of their system, the use of your friends and allies to begin to corner them; that is the way to do it. Chairman Lantos. Thank you very much. Congressman Scott. Mr. Scott. Thank you very much, Mr. Chairman. Let me just commend the both of you for an excellent presentation. We have benefitted greatly from it, and thank you, Mr. Chairman, for bringing such an illuminating presentation to us. Let me ask the both of you this question: What if North Korea either transferred or sold a nuclear weapon to al-Qaeda or any other terrorists? Should not we, in our policy, have what we call a “red line” at some point? What would be our military reaction, not for that one point, that if they sold it or transferred it, and we knew it? That is one. Two, should a device, a nuclear device, from North Korea be exploded in one of our cities—New York, Washington, or even Moscow, Paris—any major city, what should that response be if either one of those scenarios were to occur? I say that, with the world knowing now, in October, after being warned, after being told, North Korea went ahead with a nuclear test. I agree with you, Ambassador, it may not have been that successful, but we know one thing now that we did not know. We know two things: One, that they have a nuclear capacity; and, two, we did nothing about it. What should we do if one of their nuclear devices got into the hands of a terrorist group; and, second, what should the military response be should one of those explode in one of our cities? Mr. Perry. Mr. Scott, it seems to me that our policy now ought to be to deter that from happening. Once it happens, it is a different story, but we should try to deter that from happening. Our best chance, I think, of deterring that from happening is to make sure that North Korea understands that we would consider such an attack to be an attack from North Korea and respond accordingly, even though the actual attack came from a third party. I referred to the statement that President Kennedy made at the time of the Cuban missile crisis, where he said that a nuclear missile launched from Cuba against the United States or other countries in the Southern Hemisphere would be considered an attack by the Soviet Union on the United States, even if the Cubans launched the missile, and we would respond with full retaliation against the Soviet Union. I believe that statement by President Kennedy went a long way toward deterring the catastrophe that could have happened in Cuba at that time. I think we should do a similar thing. Chairman Lantos. Ambassador Lilley? Mr. Lilley. You can correct me on this, Bill, if you choose. It seems to me that President Clinton made the same point in 1993 to North Korea: If you ever use your nuclear weapons, you face massive retaliation and elimination.

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I think that is burned in there, and the question is, can you trace something through the terrorist network back to North Korea? These guys are very accomplished smugglers, and they are capable of almost anything, but it seems to me the policy that we carried out has led to them progressively backing away from a sudden violent action directly against us. You are not seeing that happening in the last 10, 15 years. You see them adopting these tactics of using WMD as a tool that they can blackmail us to get food and money and oil without ever getting into that business of putting it in al-Qaeda’s hands. I think, as Secretary Perry says, you have got to do everything possible to stop them from doing that. That is the main thing. Mr. Perry. I would add to that that the statement we made in the past was of North Korea using a nuclear weapon against us. We need to amend that statement to a third party using a North Korea nuclear weapon. In general, it is very hard to determine the source of a bomb. In this case, and, in particular, in the case of North Korea, we have had international inspectors and American inspectors at that facility making measurements for many, many years, and I believe we could, through forensics, determine whether the bomb came from North Korea or not. So I think we can make a credible threat. Chairman Lantos. Thank you very much. The gentleman’s time has expired. Mr. Sherman. Mr. Sherman. Thank you, Mr. Chairman. A few preliminary points. I think it is simply unacceptable how the State Department has recently cheapened our diplomatic language, particularly, the word “unacceptable,” since we have accepted so many things that we have branded unacceptable. I do not think we should put our faith in regime change, whether that be the violent overthrow of this regime that some in the United States harkens for or China’s hope that somehow North Korea becomes more like China. First, it is unlikely; but, second, if that regime sees itself going under, they could very well do a number of desperate things with nuclear weapons. The ambassador points out that the tide of history is on our side, in the sense that powerful nations with large economies all agree that this puny, little country, with its puny economy, should not have nuclear weapons. The problem we have is that since the dawn of the Nuclear Age, the tide of history does not work the way it used to. Only in a Nuclear Age do people in Tokyo have to fear North Korea, whereas in any other time in our history, a powerful nation and its capital would not have to worry about being exploded by a country that was far smaller and had a far smaller economy. Our colleague, Mr. Rohrabacher, calls for us to use the stick of cutting of food aid. I am informed, and I will ask our witnesses to interject if this is, in any way, wrong, that, in 2005, our total food aid to North Korea was $7.5 million. Obviously, South Korea and China provide far more, but if we just cut off our own, I do not think that is enough to bring the North Koreans to heel. So I think, as the ambassador points out, whether we meet at the highest level or just a high level, or whether we talk to a six- sided table or a two-sided table, does not so much matter. It is what we say, what we do, and what realities we create, and the realities on the ground now are that North Korea can survive without our $7.5 million worth of food aid, and as long as they get support from China, they will continue to develop nuclear weapons,

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particularly when they are not being offered the kind of sincere security guarantees and nonaggression pacts that they might aspire to. So this leaves the issue of how do we change Chinese policy? So I will ask both of our witnesses. I have been told that China does not want North Korea to continue to have nuclear weapons, but it values stability far more than nonproliferation, and it may derive some joy in the pain caused here in the United States by the North Korean nuclear program. Are we going to be able to get China to threaten to cut off North Korea’s oil just by going to the Chinese and saying, we think that is what they should do, in their own interest, and we will send smart people over there to tell them that they do not understand their own interest all that well, but once they talk to us, they will understand that it is in their own interest to change what has been their policy for the last 5 years. Mr. Secretary? Mr. Perry. I will preface what I am going to say by observing that I tried for 4 years to change Chinese policy relative to North Korea, and I was quite unsuccessful. Mr. Sherman. Mr. Secretary, were you ever authorized to tell China that we needed that change, and if we did not get it, it could change our trade policy? Mr. Perry. I was never authorized to say that. Mr. Sherman. Okay. So that leads me to the next point, and that is—— Chairman LANTOS. The gentleman is quickly running out of time, and we will not get an answer from our witnesses. Mr. Sherman. Could you have been more successful if you had been able to say that the next boat load of tennis shoes headed to our harbors might be turned around if they did not listen to you more clearly? Mr. Perry. Probably, if that threat had been credible, but China, I think, fully understands that cutting off trade with China is a double-edged sword. Mr. Sherman. I am not talking about cutting of all trade. Chairman LANTOS. Ambassador Lilley, do you want to comment? Mr. Lilley. Well, we went down that path when I was in China. We threatened to lift MFN if they did not shape up on human rights. Their answer was, go to hell. Then one year we turned around, and we said, “Well, let us go back to the drawing board.”I tried to make the point that what is happening is we are turning the screws on North Korea. That is happening. Now, our intelligence perhaps is not that good, and we are being disappointed or jilted again, but this is going on. This is happening. Do you want them to cut off all of the oil? No. The Chinese are not going to do that. They are not going to get these guys cornered because they know they will do something horrible. Do not do it that way; do it our way. Gradually, the water torture, a thousand drips on your head; this is the way to do it, not your way. Mr. Sherman. I wish I was more confident that continuing the present course would yield results, and I yield back my time. Mr. Perry. We will see. Chairman LANTOS. Ambassador Watson. Ms. Watson. Thank you, Mr. Chairman, and I want to thank our two ambassadors. This is very, very helpful. We have had reduction in our forces over there. We had a pretty large component in South Korea, and I was in that part of the world for quite a number of years. Our bases have been closed, and the number of U.S. troops that we have had have been reduced.

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I would like to know what impact has this force restructuring had on our relationships, United States and South Korea relationships, and has it impacted the Six-Party Talks in any way? Let me start off with Ambassador Lilley. Mr. Lilley. Well, we are going through a very difficult phase of renegotiating our status of forces and our forces in Korea right this minute, which is moving from Yongson to Pyongtaek, which is 70 kilometers away. We are trying to get out of that. When I was there in Korea, we had the 8th Army golf course in the middle of Seoul. It was a blight on Korean nationalism. It took us 21⁄2 years to move that out because there were elements in the United States Government that did not want to do that, but we got it done. We have to lower our profile. We have got to get into this command control in an emergency, and we are dealing with that right now with them. And it turns out, when we push it to the wall and say, “Let us do it by 2009,” they say, “2012. Okay?” You will get your wartime control back in 2012? They are very concerned that if America pulls out precipitously our security support for South Korea, they could go into economic decline. This was very much on the South Korean President’s mind. Be careful on this one. Talk to us about it before you move, he said. I think they understand that we can be quite offended by some of the editorials and demonstrations and the labor unions and the crazy young students coming after us and damning American imperialism as the cause, and this happens all of the time. But I think we are moving in the right direction. The combined forces command in South Korea is going to go. We cannot manage that anymore with an American four star in command of their troops in a crisis situation. You will not be able to do that. You will have to change that. I think what we are doing is we are trying to build up the U.N. command. There were 16 U.N. countries contributing to the forces when we fought for Korea. That anachronism still exists, but I think General Bell has been saying, “Look, take the U.N. here and use that as an instrument to establish a presence that the North and South Koreans can have confidence in to sustain our ability.”But there is always a drawback to this, and there was in these elections where the current populist President got elected. Their two little girls were killed by one of our Humvees, and this turned into a really violent, anti-American move because we took the two guys out and acquitted them. These things come up, but my sense is that we are moving in the right direction on this one, and we are shifting out of downtown Seoul, and we are giving them back the command structure and yet maintaining a deterrent to North Korea that is reliable. That is the problem. I think we are doing it. Chairman Lantos. Secretary Perry? Mr. Perry. I think that it is very important, both for United States policy and for South Korea policy, for the United States to maintain a modest force in South Korea for the indefinite future. The move out of Seoul to south of Seoul, I think, is a good move, and I commend the administration for doing that. The modest reduction in forces we are making there, I think, is also an acceptable move. I have concerns about the reduction in forces along the DMZ, and I have concerns about the change in the command structure, but, on balance, I think the actions taken by the administration on South Korea and troop forces, I think, have been good measures, and I support them.

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Ms. Watson. Let me just end by this, and it will be real quick. It has been suggested that South Korea could repulse an attack by North Korea without our support. I would like to hear your opinions on that, and thank you, Mr. Chairman, for the indulgence. Chairman Lantos. Surely. Secretary Perry? Mr. Perry. I think it would be a catastrophe for both North and South Korea. Ultimately, probably the South would win, but the real issue is what happens to the northern part of South Korea? What happens to Seoul and environments? They would be devastated by such an attack. The only chance of stopping that attack before it gets to Seoul is to have United States power at the DMZ and, most importantly, United States air power to blunt that attack before it could get into Seoul. The South Koreans could not stop that from happening. Chairman Lantos. Ambassador Lilley? Mr. Lilley. I just would add to what Secretary Perry said. I would say that North Korea has over 10,000 artillery pieces aimed right at Seoul, with conventional arms. If the balloon goes up, these could take out probably three-quarters of Seoul, and you would lose millions of people right away. So we have to do everything possible to prevent that from happening, and we are going to have our air power remain there at Osan. I think we have F–16s there now. We are able to deliver a punch. We can have the carriers based in Japan come up along the Korean coast, and they could launch attacks on North Korea, if provoked. If the North Koreans know one thing, and I went up to Juche Tower, this tower they have in the middle of Pyongyang, and looked down, and the little girl guide said to me, “Do you realize, in the Korean War, the United States obliterated this whole place?” Now, I am supposed to feel guilt. I said to her, “Look, I was in the nose of a B–26 that flew from Seoul down to Pusan and Japan, and I looked out, and I saw the absolute destruction of South Korea all the way, every tree, every village smashed.” We left it at that. Chairman Lantos. Thank you very much. Mr. Lilley. I had no sense of guilt. Chairman LANTOS. Thank you very much. Congressman Payne. Mr. Payne. Thank you very much. Good to see both of you, and, Mr. Perry, remember our troop to Goma, Lake Goma, when the cholera took over and the 2 million—— Mr. Perry. I remember it very well. Mr. Payne. I left Rwanda after the genocide, and I have always admired the work that you have done, and it is good to see Ambassador Lilley. I also agree that the talks with North Korea were very helpful, and you have already laid out where they could have been and where they are as a result of the talks. We have this new policy: Do not talk to certain people. We cannot talk with Syria. We cannot talk to Iran. I think it is a bad policy. I also agree with Ambassador Lilley that, you know, you talk about Most Favored Nations status with China. Then we went in and gave them permanent trade relations. That is even worse. This is in there, and, I think, if we had not given China permanent trade relations, we could have had some real leverage over them, and I think we need to revisit that, the way China is behaving in Sudan and dropping all kinds of human rights conditions for loans to countries in Africa. I think that China could be very destructive in the future. And also, Mr. Hoover, Ambassador Lilley, waited a little while before—you know, that starvation had gotten pretty bad in the Ukraine before we really laid the line down. I think Ukraine was one of the worst genocides that really went on at that time.

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Also, on the Asian Communists, too, I certainly agree that many of them were just fighting against the imperialists and colonization, and that was a big difference, where, in Eastern Europe, it was just under Soviet domination. But the countries were fighting against the French in Vietnam, and I think a lot of our support for our allies, the NATO countries, even in Africa and in Asia, pushed many countries to Communists, where they were really, I think, freedom fighters or national liberation movements and that kind of thing. However, I do have a question. The business—and I hope we have a hearing sometime on China and where we are going. Are they going to be our friends? We have our business people that have a love fest going with them. We have some of our defense people who are saying, you know, they are building up a Navy. They are starting to go up into space. I think we need to make a decision on, are we love with China, or are we going to hate them, because we really get such crossed signals that it is confusing, I think, and it is going to get worse in the future. Just this question: With the population of South Korea aging, like everywhere else, and the younger people not having the same feel toward the United States that defended South Korea and held it from being overrun by the Communists, the older people being very proUnited States—I think you touched on it a little bit, but if you could tell me, where do you think we are going in the future because the younger people, even though they have not had the direct relation, seem to be more sympathetic to North Korea than the older people who remember what the United States did to prevent South Korea from North Korea? And it seems, in opinion polls, that the younger Koreans in the South have a stronger feel and not are as anti-North Korea and almost some anti-United States. So, as time goes on, how do you see that playing out, since, I guess, older people will be less and less, and younger people will be more and more, both of you, if you would? Mr. Perry. That is a very good question, Congressman Payne. I agree with your observation that there is a big difference between the older and the younger people, in terms of their view of the United States. I believe that the younger ones can be won over, particularly as they get a little older. And I observed that the people that I worked with when I was the secretary, the ones in their thirties and forties who were in the Government of South Korea then, in their college days, had been leading the demonstrations against the United States, and they changed. When I was over there on my last visit to South Korea, I met with this younger generation. I had a special meeting of the people, of the firebrands, who were very much antiU.S. and I have the same view about them. They can be won over, too. One of the things we are doing to help on that is removing the aggravation of having all of our troops in the middle of Seoul. I think that is a very positive action. Secondly, if we can get going solidly on the negotiations with North Korea, that, I think, would make the biggest difference. We want to do that for our own reasons alone, but I think it would also very much help the relationship in South Korea. Chairman Lantos. Ambassador Lilley? Mr. Lilley. I am not trying to belittle in any way the so-called anti-Americanism in South Korea, but when I arrived in South Korea in 1986, I was burned in effigy before I arrived. There were probably about 20,000 or 30,000 people in the square, and the South Korean police, in their Darth Vader costumes, pushing them back. All of that continued in the summer of 1987, we went through huge demonstrations that were against the government and against the United States.

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Briefing and Hearing before the Committee on Foreign Affairs…

169

So all I can say is this has been around for a long time. My predecessor in Korea wrote, I think, 10 cables saying, anti-Americanism, this is the end, and, of course, it was not. There will be elections in South Korea in December of this year. The leading party in the polls is the conservative party; the opposition party—it is the GNP. The polls are all in their favor. We see the spectaculars, but there seems to be a body of people that are voting in—I guess I should not use this—in a responsible way. I would agree with Secretary Perry in the sense that one of the firebrands, when I was in Korea, is now the head of the ruling party. You find this happening in Korea. It is an evolutionary process. You have got to eliminate the things that are causing real friction and then get on with the fact that, still, an awful a lot of South Koreans migrate to the United States. The communities here are large, and the church plays an important role in stabilizing South Korea. Chairman Lantos. Thank you very much. Congressman Costa. Mr. Costa. Thank you, Mr. Chairman, again for this level of exexpertise testimony that we are having this afternoon. It is very, I think, informative for all of us. As I listened to the two witnesses testify about a history of policy that has gone on now for five decades-plus, through both Democratic and Republican administrations, I am mindful of the fact that if the judgment for success is that South Korea has been a viable democracy and a successful economy, then, by and large, notwithstanding whatever mistakes have been made, it has worked, more or less. I think we are in the long haul as it relates to North Korea, as we have been over the last five decades, and I am wondering about what information you might enlighten us with regards to the stability, given the current regime and its history from father to son. You have laid out several scenarios this afternoon as to what if, as we look down the road. The successor from father to son, I think, was pretty clear, but what happens if he is to be either toppled or has health problems? What would be, in your view, the reaction? Could the government, in some fashion, still, with the military, stand in some way? What are your thoughts as to after the current ruler is no longer there? Mr. Perry. I believe that, unfortunately, the present regime is stable; that is, through their control of information and through their secret police, they maintain very adequate control of their country. I do not expect to see a Romanian- or Albanian-type popular overthrow of the government there. What you could see is a coup. With the passing of Kim Jong Il, you could see a coup of some sort or a military push, which brought, among the people who are contending to succeed him, there might be a competition as to which one. This would not, I think, bring about a fundamental change in our relationship with North Korea. It would be another one of the same. Ambassador? Mr. Costa. Ambassador? Mr. Lilley. I would agree with Secretary Perry that NK control is formidable, and you do not see the major cracks coming, but there are minor cracks: The refugees that are coming out, and, as the chairman knows very well, when the refugees come out, the regime begins to sink. The Chinese are watching the refugee flow, and they are sending enough refugees back to North Korea to keep the North Koreans placated at the same time they are shipping them over to South Korea. The refugees are a real problem because they really have been brought up in this hothouse atmosphere where they cannot do anything.

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Briefing and Hearing before the Committee on Foreign Affairs…

But the real control that Kim Jong Il has, despite the fact that his sons turned out to be a mess—the oldest one, you know, got caught in Japan on a false passport trying to get into Disneyland. It is something out of a bad movie, but his control over the elites, the military, the Korea Workers Party, is very strong, and it is done in terms of coercion, and it is done in terms of buying them off. He has got all of these palaces, the Remy-Martin, the lovely Korean ladies. All of these things are available to them. They live on top of the world, a million, 2 million of them, and if they did not have this, they would be shining shoes in Seoul because they have no talents to do anything except kill and create a military-industrial enterprise. So I am saying that I agree, but there is no reason to give up on this because you are beginning to get into them: Gaesong, the cross-border between China and North Korea. You are beginning to get signs that the economy is not working, and they have to change. You get this from middle-level bureaucrats. So you see some of the seeds are there, but we cannot jump in and say it is going to change quickly. No. That is not going to happen. Mr. Costa. So you see the ruling class able to continue the status quo for—— Mr. Lilley. They have got a vested interest in doing that, but, again, the intelligence is not good, and in a fragile situation like that, we could all be very surprised that something could happen suddenly, but all of the signs are it is not happening. Chairman Lantos. Thank you very much. I know, gentlemen, I speak for every member of this committee and, I think, for the American people, that we are extremely lucky to have the two of you willing to give many years of your life to public service. This has been an extraordinarily valuable and analytical presentation, and we are in your debt. Thank you very much. Mr. Chabot. Mr. Chairman, before you bang the gavel, and I apologize, I just wanted to echo what the chairman said. Having been to North Korea twice, not professing to be any kind of an expert, I was listening to your testimony from the TV, and I just want to say thank you both so much for everything that you do and for being enlightening to us. Secretary Perry, I had the honor of traveling with you when you were defense secretary, and my opinion of you was great then, and it is as great today. Thank you. Ambassador, thank you for all of your good work. Thank you, Mr. Chairman. Chairman Lantos. Thank you for your comment. This hearing is adjourned. [Whereupon, at 3:55 p.m., the committee was adjourned.]

COMMITTEE ON FOREIGN AFFAIRS Tom Lantos, California, Chairman Howard L. Berman, California Gary L. Ackerman, New York Eni F.H. Faleomavaega, American Samoa Donald M. Payne, New Jersey Brad Sherman, California Robert Wexler, Florida Eliot L. Engel, New York

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Briefing and Hearing before the Committee on Foreign Affairs… Bill Delahunt, Massachusetts Gregory W. Meeks, New York Diane E. Watson, California Adam Smith, Washington Russ Carnahan, Missouri John S. Tanner, Tennessee Lynn C. Woolsey, California Sheila Jackson Lee, Texas Rube´ N Hinojosa, Texas David Wu, Oregon Brad Miller, North Carolina Linda T. Sa´ Nchez, California David Scott, Georgia Jim Costa, California Albio Sires, New Jersey Gabrielle Giffords, Arizona Ron Klein, Florida Vacant Vacant Ileana Ros-Lehtinen, Florida Christopher H. Smith, New Jersey Dan Burton, Indiana Elton Gallegly, California Dana Rohrabacher, California Donald A. Manzullo, Illinois Edward R. Royce, California Steve Chabot, Ohio Thomas G. Tancredo, Colorado Ron Paul, Texas Jeff Flake, Arizona Jo Ann Davis, Virginia Mike Pence, Indiana Thaddeus G. Mccotter, Michigan Joe Wilson, South Carolina John Boozman, Arkansas J. Gresham Barrett, South Carolina Connie Mack, Florida Jeff Fortenberry, Nebraska Michael T. Mccaul, Texas Ted Poe, Texas Bob Inglis, South Carolina Luis G. Fortun˜ O, Puerto Rico Robert R. King, Staff Director Yleem Poblete, Republican Staff Director Peter M. Yeo, Deputy Staff Director Genell Brown, Staff Associate

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171

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INDEX

9 9/11, 32, 37, 55

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A abduction, 21, 22, 23, 24, 26, 28, 99, 106, 108, 119, 120, 122, 123 absorption, 4, 52, 154, 159, 160 academics, 30, 52 accessibility, 67 accountability, 22 accounting, viii, 12, 48, 74, 106, 107, 119 achievement, 161 adjustment, 74, 123 administration, 9, 26, 30, 33, 34, 39, 40, 71, 128, 130, 132, 134, 137, 138, 142, 143, 144, 155, 156, 157, 158, 160, 162, 166 administrative, 77 administrators, 158 AEI, 53 Africa, 114, 122, 167, 168 afternoon, 169 age, 18, 36, 75 agents, 23, 42, 98, 119, 120, 122 aggression, 103 aging, 64, 168 agricultural, 36, 51, 73, 74, 75, 84 agricultural sector, 74 agriculture, 18, 49, 66, 73, 75, 105, 111 aid, viii, 1, 7, 8, 10, 11, 12, 13, 16, 20, 21, 22, 23, 26, 29, 30, 33, 35, 38, 39, 41, 43, 46, 47, 50, 52, 64, 65, 66, 67, 68, 73, 80, 81, 84, 86, 88, 89, 90, 91, 93, 96, 97, 98, 99, 100, 105, 106, 107, 109, 112, 119, 132, 134, 142, 153, 157, 158, 164 air, 7, 148, 167

Air Force, 61 airports, 146 Albino, 110 alienation, vii, 2 allies, 4, 20, 30, 43, 46, 52, 102, 107, 127, 129, 135, 137, 139, 140, 141, 145, 148, 163, 168 alternative, 12, 45, 71, 93, 103, 137, 138, 141, 144, 154 alternative energy, 154 alternatives, 28, 43, 44, 45, 131, 137, 138, 141, 144 aluminum, 99 ambassadors, 33, 165 analysts, 8, 15, 52, 62, 78, 97, 115, 120, 122 anger, 121 antagonism, 42 antagonistic, 30 anti-American, 145, 162, 166, 168, 169 anti-Americanism, 145, 168, 169 ants, 156 apparel, 78, 92, 97, 99 appeasement, 31 application, 31, 54, 65, 104 aquaculture, 74, 84 ARF, 51 argument, 32, 148 Arizona, 171 Arkansas, 171 armed conflict, 52 Armed Forces, 117 Army, 55, 60, 62, 72, 111, 166 arrest, 77 ASEAN, 147 Asia, vii, 2, 3, 4, 5, 6, 8, 13, 19, 20, 21, 25, 30, 32, 44, 45, 48, 51, 52, 53, 54, 55, 56, 57, 58, 61, 79, 80, 89, 90, 93, 95, 100, 104, 105, 106, 107, 110, 111, 112, 113, 114, 115, 116, 117, 122, 128, 129, 130, 131, 132, 134, 156, 159, 162, 168

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

174

Index

Asian, vii, 2, 3, 4, 6, 8, 10, 16, 21, 25, 35, 42, 49, 53, 54, 55, 58, 62, 67, 68, 75, 91, 103, 106, 107, 108, 111, 112, 113, 114, 116, 123, 147, 159, 168 Asian countries, 75 assessment, 3, 31, 32, 33, 143 assets, 90, 105, 133 Association of Southeast Asian Nations, 147 assumptions, 102, 103, 157 asylum, 18, 95 asymmetry, 45 Atlas, 81, 82, 83, 91, 92, 98, 100, 111, 112, 116 atmosphere, 31, 60, 169 attacks, 15, 25, 32, 35, 37, 102, 167 attitudes, 65, 68, 102, 148 aura, 71 Australia, 51, 85, 86, 89, 110 authenticity, 159 automobiles, 95 autonomy, vii, 3, 4, 74 availability, 43, 67, 146 aversion, 159 axis of evil, 15, 32, 33, 36, 104, 134, 161, 162

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B backfire, 16 background information, viii, 119 ballistic missile, 14, 24, 25, 46, 77, 88, 105, 120, 136, 141 ballistic missiles, 46, 77, 88, 105, 136, 141 Bangladesh, 69 bank account, 147 Bank of Korea, 69, 73 banking, 97 bankruptcy, 12 banks, 17, 84, 86, 97, 99, 147 bargaining, 16, 20, 44, 45, 46, 52, 105, 106, 108, 153, 157, 163 barley, 68 barriers, 31, 36 barter, 11, 12, 17, 36 beef, 52 beer, 75 behavior, 1, 3, 5, 8, 19, 30, 40, 43, 51, 102, 105, 120, 129, 145, 148, 153, 155, 160 behavioral change, 26 behind-the-scene, 9, 35 Beijing, 2, 3, 6, 7, 8, 9, 10, 11, 12, 13, 16, 20, 21, 22, 30, 34, 35, 38, 39, 43, 45, 46, 47, 49, 50, 51, 53, 55, 62, 77, 79, 95, 96, 97, 123, 133, 137, 142, 152, 154, 156 Belgium, 97 benchmark, 34

benchmarks, 115 benefits, 46, 51, 108, 159, 162 benign, 3 Berlin Wall, vii, 2, 3 betrayal, 49 Bhutan, 99 Bible, 148 bilateral relations, 22, 30, 98, 99 bilateral trade, 29, 81, 98, 108 Bilateral trade, 28, 98 binding, 32, 34 bipartisan, 45, 132 BIS, 84, 113 black market, 129 blame, 47, 72 blaming, 132, 147, 157 blood, 160 boats, 88 boilers, 99 bomb, 135, 136, 138, 139, 140, 143, 144, 153, 157, 164 bonds, 85 Boris Yeltsin, 14 borrowing, 84 Botswana, 99 Brazil, 51, 81, 84 breakdown, 147 bribery, 77 bribes, 76 brothers, 161 Brussels, 113 buffer, 13, 95, 147 Bureau of Economic Analysis, 115 bureaucracy, 70 buses, 35, 42 Bush administration, 8, 9, 26, 30, 31, 33, 35, 36, 40, 51, 52, 109, 130, 132, 137, 139, 142, 162 Bush Administration, 63, 64, 65, 90, 103, 107, 120, 121, 122, 124 Bush Doctrine, 56

C cables, 79, 169 calculus, 8 Canada, 25, 51, 90 capacity, 73, 124, 156, 163 capital flows, 84 capital markets, 47, 84 capitalism, 49, 56, 75, 112 capitalist, 7, 46, 47, 49 cargo, 19, 28, 84 cash flow, 129

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Index casting, 7, 43 catalyst, 8, 13, 38 caviar, 98 CBS, 59 cement, 28, 112 Central Asia, 32 central planning, 72 centralized, 64, 68, 70, 75 centrifugal forces, 6 cereals, 92 channels, 70, 88, 93, 128 chaos, 12, 53 chemical industry, 79 chemical weapons, 61 chemicals, 92, 94 children, 23, 67, 68, 120, 124, 139, 145 cholera, 167 CIA, 66, 69, 148, 155 citizens, viii, 21, 22, 23, 24, 25, 29, 36, 65, 70, 77, 84, 89, 98, 103, 104, 106, 107, 119, 120 civil society, 28 Civil War, 147 civilian, 36, 87, 103 clams, 99 classes, 70, 71 classical, 60 Clinton administration, 8, 31, 32, 128, 155, 156, 157, 158, 160, 161 closure, 66, 115 Co, 14, 38, 60, 78, 79, 80, 85, 86, 94, 95, 116, 128, 130, 134, 155, 156, 161 coal, 17, 50, 66, 73, 77, 84, 88, 97, 101 coal mine, 88 Coast Guard, 25 coastal areas, 27 cocoon, 24 coercion, 138, 144, 170 cohesion, 145, 162 Cold War, i, iii, v, vii, 1, 2, 3, 4, 5, 6, 7, 8, 10, 12, 14, 17, 20, 24, 29, 30, 32, 38, 39, 43, 45, 46, 47, 49, 51, 54, 55, 62, 93, 98, 99 collateral, 135 collusion, 47 colonial rule, 21, 26, 123 colonialism, 73 colonization, 168 Colorado, 171 Columbia University, 2, 110 command economy, 72 communication, 78, 79, 128, 141 communism, 3 Communist Party, 50, 66 communities, 4, 161, 169

175

community, vii, 3, 4, 6, 20, 62, 130, 132, 138, 144, 155 comparative advantage, 46 compensation, 21, 22, 26, 34, 107, 123 competition, 13, 39, 46, 169 competitiveness, 11, 49 complexity, 1 compliance, 22, 31, 104 components, 41, 52, 78, 82, 84, 105 concentration, 5 conception, 30 concrete, 39, 129 conditioning, 5 confession, 8 confidence, 12, 39, 128, 130, 138, 143, 156, 162, 166 configuration, 15 conflict, 5, 6, 7, 8, 30, 37, 40, 41, 43, 44, 45, 53 conformity, 8 confrontation, 8, 13, 40, 43, 101 Confucianism, 71 Congress, v, viii, 63, 64, 65, 78, 104, 106, 109, 110, 115, 117, 119, 124, 127, 131, 141, 161 consensus, 4, 9, 45, 62 Consolidated Appropriations Act, 91 constraints, 45 construction, 13, 18, 31, 32, 73, 74, 77, 79, 86, 94, 96, 115, 139, 141 consulting, 69 consumer electronics, 95 consumer goods, 146 consumers, 75 contamination, 148 contiguity, 7 contingency, 4, 25, 136, 140 continuity, 49 contracts, 19 control, 43, 44, 46, 64, 73, 75, 105, 109, 141, 145, 159, 166, 169, 170 convergence, 42 coping strategies, 46 coping strategy, 51 copper, 80 corn, 36, 75, 94 corporations, 94 correlation, 32, 45 corruption, 147 cosmetics, 78 cost-effective, 46, 52 costs, 42, 77, 93, 94, 107, 131, 157 cotton, 90 counterfeit, 24, 89, 103, 105, 133 counterfeiting, 18, 19, 35, 84, 89, 99, 102, 115, 130, 131, 133, 134, 147, 156

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

176

Index

coverage, vii, 2, 4, 81 covering, 40 credibility, 43 credit, 85, 88, 99, 152 credit rating, 85 credit unions, 88, 99 creep, 8 crimes, 35, 90 criticism, 65, 121, 158 crop production, 74 crops, 74 cross-border, 12, 170 CRS, 63, 66, 67, 87, 106, 109, 110, 111, 113, 114, 115, 116, 117, 119, 124 crude oil, 97 cruise missiles, 140 Cuba, 108, 163 cultivation, 50 cultural influence, 7 Cultural Revolution, 10, 13, 146 culture, 30, 47, 120, 130 currency, 47, 73, 74, 75, 77, 78, 88, 89, 102, 103, 105, 115, 130, 133, 134, 159 cycles, 38, 40

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D Daewoo, 94 danger, 8, 28, 32, 138, 139, 144, 145 data gathering, 81, 108 data set, 43 database, 76, 85, 86, 110, 113 death, vii, 2, 3, 4, 52, 89, 121 death sentence, 89 deaths, 23, 121 debt, 12, 17, 18, 20, 27, 47, 101, 170 debts, 12, 17, 18, 47 decentralization, 50 decision making, 72 decisions, 72, 74, 134 deep-sea, 72 defense, 9, 25, 26, 33, 35, 57, 71, 72, 95, 99, 111, 123, 131, 136, 140, 158, 168, 170 deficit, 11, 64, 80, 93, 105 deficits, 11 definition, 146 delivery, 12, 32, 90, 101 democracy, 102, 162, 169 Democratic Party, 21, 26 Deng Xiaoping, 8, 33, 49 denial, 22, 36, 120 Department of Commerce, 36, 37, 82, 91, 92, 93 Department of Defense, 4, 54, 62

Department of State, 109, 114, 117 deposits, 85 deprivation, 71 desertion, 124 destruction, 38, 90, 102, 129, 167 deterrence, 32, 33, 136, 139 devaluation, 74 developed countries, 14 developing countries, 90 developing nations, 89 development assistance, 85, 86, 87, 91 development banks, 86 dictatorship, 134, 159 diesel, 75 diminishing returns, 39 direct investment, 27, 50, 86, 93 disaster, 47, 155, 161 disclosure, 104 discrimination, 88 discriminatory, 6 dislocation, 159 dismantlement, 26, 100, 119, 136, 140, 141 disorder, 38 dissatisfaction, 67, 102 distortions, 102 distraction, 161 division, 30, 93 DNA, 124 domestic economy, 81 donor, 86 donors, 86, 87, 110 downsizing, 9 draft, 52 dream, 5, 19, 52 drought, 68, 74 drug dealing, 134 drug smuggling, 28 drug trafficking, 18, 35, 89, 99, 130 drugs, 24, 81, 84, 89, 102, 103, 105, 147 duty free, 78, 90 duty-free treatment, 90

E earnings, 88 East Asia, 2, 5, 6, 8, 20, 21, 25, 49, 54, 58, 68, 106, 112 Eastern Europe, 159, 168 eating, 66, 148 economic activity, 63 economic assistance, 22, 46, 65, 66, 67, 68, 96, 98, 102, 104, 107, 119, 132

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Index economic cooperation, 14, 18, 21, 23, 34, 39, 40, 95, 101, 160, 161 economic crisis, 19, 43, 47, 67 economic development, 26, 33, 34, 141 economic growth, 68, 102 economic hardships, 101 economic incentives, 107 economic integration, 6, 53, 79 economic leverage, 8, 93 economic liberalization, 103 economic migrants, 95 economic performance, 63, 67 economic reform, 29, 49, 50, 52, 63, 70, 74, 76, 79, 102, 146, 148 economic reforms, 29, 49, 63, 70, 74, 76, 146 economic systems, 95 economics, 24, 71, 105 Egypt, 77, 97 elaboration, 57 election, 33, 40, 145 electricity, 70, 75, 80, 102, 140 embargo, 36, 105 emotional, 29, 121, 153 energy, 3, 12, 16, 17, 25, 26, 31, 64, 65, 73, 80, 81, 88, 91, 98, 101, 106, 107, 119, 145, 154, 156, 159 engagement, 8, 29, 31, 32, 33, 38, 78, 103, 106, 134, 142 entanglement, 6 enterprise, 170 entertainment, 88 entrapment, 7, 43 environment, vii, 3, 4, 13, 14, 124 equality, 8 espionage, 23, 107 ethical standards, 130 ethics, 49 Europe, 14, 18, 19, 20, 21, 25, 84, 103, 108, 120, 159 European Community, 85, 86, 87 European Union (EU), 39, 51, 107 Europeans, 159 evil, 15, 32, 33, 36, 37, 104, 134, 161, 162 evolutionary process, 169 exchange rate, 70, 74 exclusion, 16, 23 excuse, 25, 155 Executive Branch, 64 Executive Order, 89 exercise, 44, 46, 104, 138 expanded trade, 98 expenditures, 72, 131 expert, 89, 170 expertise, 159 export controls, 36

177

exporter, 89 Export-Import Bank, 87, 109 exports, 11, 12, 28, 31, 36, 65, 74, 80, 81, 84, 88, 90, 91, 92, 93, 94, 95, 97, 99, 101, 105, 108 external relations, 113 external shocks, vii, 2, 3, 14, 47 extraction, 79 extrapolation, 58 eyes, 20

F failure, 16, 22, 28, 47, 96, 133, 140, 155, 158 faith, 164 family, 23, 24, 75, 76, 89, 93, 124 family members, 23, 24, 89 famine, vii, 2, 4, 68, 136, 141 FAO, 112 Far East, 15, 18, 19, 111, 112, 113 farmers, 50, 71, 72, 75 farming, 71, 74 farms, 65, 74 fatigue, 123 FBIS, 111 FDI, 50, 76, 86, 113 fear, 3, 8, 12, 15, 24, 26, 33, 45, 46, 104, 130, 132, 159, 162, 164 fears, 5, 8, 38, 75, 120, 123 feeding, 64, 68, 134 feelings, 156 fees, 78 fertilizer, 50, 109, 147, 153 fertilizers, 74, 111 fibers, 101 fighters, 44 filament, 97 finance, 81, 88, 91, 129 financial crisis, 14, 44 financial institution, 27, 91, 99, 103, 107 financial institutions, 27, 99, 107 financial markets, 85 financial resources, 17 financial system, 90, 93, 131 financing, 86, 104 fire, 21, 44, 136, 139 firms, 17, 27, 28, 73, 77, 78, 84, 95, 97 fish, 17, 84, 97 fishing, 74 flexibility, 46, 119, 128 flooding, 63, 68, 70, 74 flow, 107, 156, 169 fluctuations, 14

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178

Index

food, 3, 12, 17, 23, 29, 64, 65, 66, 67, 68, 70, 71, 73, 74, 79, 80, 82, 88, 90, 91, 93, 94, 96, 97, 98, 99, 104, 105, 109, 112, 134, 145, 147, 156, 157, 158, 159, 160, 164 food aid, 17, 29, 64, 67, 82, 91, 93, 96, 97, 99, 104, 109, 134, 145, 158, 164 Food aid, 25 food intake, 67 food production, 67 food products, 79 footwear, 78 forecasting, 109, 110 foreign aid, 1, 12, 64, 73, 81, 84, 86, 97, 109, 132, 134 foreign assistance, 64, 67 foreign direct investment, 39, 44, 49, 71, 76, 86 Foreign Direct Investment, 76 foreign exchange, 6, 74, 80, 84, 108 foreign investment, 50, 64, 75, 76, 77, 84, 95, 97, 103 foreign policy, vii, 3, 4, 5, 7, 8, 20, 30, 31, 43, 44, 45, 46, 51, 57, 99, 123, 128, 130, 158, 161, 162 Foreign Relations Committee, 58 foreigners, 160 forensic, 124, 140 forestry, 94 fragmentation, 19 France, 59, 85, 86, 87, 111 fraud, 77 free trade, 76, 77, 86, 90, 146 freedom, 102, 168 freedom fighter, 168 freezing, 67, 136, 140 freight, 18, 88 friction, 84, 96, 119, 169 friendship, 15 frustration, 12 FTA, 78, 109, 113 FTAs, 78 fuel, 12, 17, 24, 31, 64, 65, 67, 86, 88, 90, 100, 101, 104, 107, 109, 136, 137, 138, 140, 142, 143, 144, 155 fuel cycle, 140 functionalism, 60 fund transfers, 99 funding, 25, 32, 42, 86, 93, 124, 141 funds, 26, 64, 78, 85, 86, 88, 90, 99, 101, 104, 105, 107

gas, 17, 19 GDP, 6, 26, 54, 66, 68, 69, 70, 73 General Accounting Office, 32 Generalized System of Preferences, 36, 115 generation, 40, 148, 168 Geneva, 58 genocide, 167 geography, 5, 44 Georgia, 171 Germany, 81, 82, 84, 85, 86, 87, 93, 101, 110, 159 gifts, 88, 129 girls, 166 glass, 94, 146 global economy, 129 Global Insight, 66, 69, 70, 81, 109, 110 global markets, 95 global terrorism, 102 global trade, 48 globalization, 6, 12, 74, 79 Globalization, 61 GNP, 169 goals, vii, 3, 4, 97, 101, 102, 103, 106, 157 gold, 28, 80 goods and services, 17 governance, 102 government, 12, 17, 22, 24, 25, 27, 28, 29, 40, 45, 49, 57, 69, 71, 72, 73, 74, 75, 77, 78, 79, 85, 86, 87, 88, 89, 90, 94, 99, 103, 105, 115, 120, 122, 124, 128, 136, 139, 140, 141, 143, 168, 169 government-to-government, 12 grain, 36, 66, 74, 138, 144, 153 grains, 70, 84 grants, 22 grapefruit, 138, 144 graphite, 31 greed, 65, 136, 140 grief, 162 gross domestic product, 6, 26, 66, 69 gross national product, 69 groups, 27, 77, 89, 99, 102, 110, 115, 120, 121, 123, 135 growth, 39, 66, 68, 69, 70, 102, 105, 129 growth rate, 69 GSP, 36 Guangzhou, 50 guest worker, 19 guest workers, 19 guilt, 24, 167 guns, 44, 66, 72

G H Gabon, 97 games, 158

hands, 8, 24, 136, 139, 146, 148, 153, 163, 164

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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Index hard currency, 3, 28, 41, 70, 73, 78, 84, 89, 95, 129, 133, 159 hardships, 136, 141 harm, 130 Harvard, 53 harvesting, 74 hate, 168 Hawaii, 136, 141 health, 169 health problems, 169 hearing, viii, 119, 122, 131, 132, 134, 135, 155, 160, 168, 170 heat, 8, 44, 57 heavy oil, 104, 145 hegemony, 59, 104 height, 68, 120 heroin, 19, 89 Heroin, 114 Hezbollah, 129 high-level, 128, 154, 155, 159, 163 high-tech, 47, 51 highways, 95 hips, 30, 106 hiring, 146 Hiroshima, 24 Hong Kong, 68, 81, 96, 129 hospitals, 67 host, 12, 136, 139 hostage, 39 hostilities, 30, 93, 140 hostility, 18, 34, 45, 102 House, viii, 89, 114, 119, 122, 127 household, 70, 75 households, 67, 69, 75 housing, 70 hub, 5 human, 35, 64, 67, 91, 102, 106, 107, 109, 120, 121, 122, 124, 133, 155, 156, 158, 165, 167 human dignity, 102 human rights, 35, 64, 102, 106, 107, 109, 120, 124, 133, 155, 156, 165, 167 humanitarian, 16, 22, 24, 38, 41, 46, 63, 65, 66, 67, 81, 86, 90, 91, 96, 98, 99, 105, 109, 157, 158 humanitarian aid, viii, 41, 46, 65, 66, 67, 86, 90, 91, 96, 98, 105, 119, 157, 158 humanitarianism, 15 Hungary, 97 husband, 124 hydroelectric power, 74 Hyundai, 42, 76, 77, 86, 94, 95

179

I IAEA, 31 id, 8, 12, 24, 34, 46, 61, 62, 75, 93, 124, 157 identity, 6, 8, 14, 19, 25, 29, 32, 36, 37, 38, 42, 46, 47, 49 ideology, 7, 46, 47, 71, 93 illegal drugs, 81, 84, 102, 103, 105 Illinois, 171 imagination, 29 IMF, 49, 81, 108, 113, 117 immigration, 28 imperialism, 30, 74, 77, 166 implementation, 15, 16, 29, 32, 35, 51, 108, 155 imports, 11, 12, 36, 47, 64, 66, 67, 73, 77, 80, 81, 82, 84, 86, 89, 91, 92, 97, 98, 99, 101, 105, 133 imprisonment, 70 in situ, 105 inauguration, 38, 40, 44, 142 incentive, 9, 20, 66, 67, 108, 153 incentives, 9, 50, 52, 74, 75, 103, 107, 127 inclusion, 33, 104, 122 income, 54, 69, 71, 88, 95, 110, 131 incomes, 70 incongruity, 1 independence, 13, 71, 162 India, 45, 48, 81, 82, 107, 131 Indian, 82 Indiana, 171 indication, 26 Indonesia, 69, 124, 146 industrial, 3, 17, 42, 51, 63, 65, 67, 71, 72, 73, 77, 78, 81, 93, 99, 170 industrial production, 65, 81 industrial sectors, 72 industrialization, 68 industry, 13, 18, 66, 71, 73, 79 inflation, 69, 75 information system, 82 information technology, 73 infrastructure, 5, 38, 77 infringement, 15 inhospitable, 13 initiation, 13, 39, 128 injury, 138, 143 insecurity, 16 insight, 43, 152 inspection, 49, 84, 136, 139, 140 inspections, 28, 31, 67, 88, 97 inspectors, 31, 104, 136, 137, 140, 142, 164 inspiration, 49 instability, 28, 44, 45, 63, 67, 147 institutionalization, 40

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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180

Index

institutions, 6, 67, 71 insurance, 29, 46, 78, 79, 129 integration, 6, 40, 53, 79, 93, 132 integrity, 45, 124 intelligence, 4, 75, 135, 143, 148, 165, 170 intelligence gathering, 75 intensity, 30 intentions, 42, 105, 147 interaction, 6, 9, 24, 102, 103, 108, 112, 161 interactions, 50 interdependence, 6, 18 interference, 14, 39, 101 International Atomic Energy Agency (IAEA), 8, 17, 104 international financial institutions, 91, 103 international investment, 64, 105 international law, 22, 102 International Monetary Fund, 27, 37, 80, 81, 91, 100, 103, 107, 108, 113, 117 international relations, 2, 6, 16, 30 international terrorism, 26, 36, 90, 115 international trade, 64, 71, 95, 103 International Trade, 28, 37, 80 International Trade Administration, 37 Internet, 54, 110, 111, 112, 116 interpretation, 57 intervention, 23, 26, 39, 145 interview, 33, 59 intrinsic, 44, 45 investment, 8, 13, 18, 19, 27, 29, 30, 31, 36, 39, 41, 44, 49, 50, 52, 64, 66, 71, 72, 75, 76, 77, 79, 80, 86, 93, 95, 102, 103, 105, 106, 108, 154 investors, 27, 70, 79, 84, 85 Iran, 88, 129, 136, 139, 154, 155, 167 Iraq, 15, 34, 36, 52, 88, 104, 130, 131, 143, 156, 161 Iraq War, 143, 161 iron, 73, 77, 79, 80, 97, 99, 101, 145 isolation, 10, 14, 15, 30, 66, 71, 80, 103, 119, 123 Israel, 90, 129

J Jamaica, 101 Japan, vii, viii, 1, 3, 5, 6, 15, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 34, 40, 42, 43, 46, 48, 50, 52, 57, 58, 62, 63, 65, 67, 69, 70, 76, 80, 81, 82, 83, 88, 89, 90, 93, 96, 97, 98, 99, 101, 102, 103, 104, 105, 106, 107, 108, 109, 114, 115, 117, 119, 120, 121, 122, 123, 124, 125, 128, 129, 130, 131, 136, 137, 138, 140, 141, 142, 144, 145, 152, 153, 167, 170 Japanese, v, viii, 4, 13, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 57, 58, 64, 65, 72, 84, 88, 89, 95, 98, 99,

104, 106, 107, 111, 114, 115, 119, 120, 121, 122, 123, 124, 137, 141, 146, 155, 160 jewelry, 78, 98 jobs, 18, 41, 70, 78, 95 Joint Chiefs, 136, 140 joint ventures, 50 journalists, 115 Juche, 71, 167 judge, 33 judgment, 154, 156, 169 Jung, 39, 40, 42, 44, 56, 59, 62, 94, 112, 142 jurisdiction, 90 justification, 146

K kidnapping, 23, 104 killing, 4 Korean government, 29, 40, 49, 72, 77, 78, 86, 87, 89, 90, 141 Korean War, 4, 30, 38, 69, 71, 87, 99, 107, 140, 167 Kosovo, 14 Kuril Islands, 13

L labeling, 9 labor, 18, 32, 73, 77, 78, 93, 94, 95, 106, 146, 166 land, 50, 70, 77, 148 land use, 77 language, 9, 78, 109, 120, 134, 153, 164 large-scale, 26, 74 Latin America, 84 laundering, 90 law, 22, 24, 29, 102, 108, 131 laws, 29, 50 LDP, 21, 24, 29 leadership, 8, 21, 22, 45, 74, 100, 124, 160, 161 learning, 22 legislation, viii, 26, 64, 119, 131 lens, 37 liability insurance, 29 liberal, 108 liberalization, 68, 103, 160 liberation, 168 liberty, 102 Libya, 143 lifestyle, 63, 67 likelihood, 61 limitations, 45, 157 linkage, 43 links, 18, 42, 71, 99

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

Index liquidation, 25 liquor, 75, 98 listening, 158, 170 livestock, 84 living standard, 69 living standards, 69 loans, 17, 84, 109, 167 lobbying, 20 local government, 27, 28 localization, 6 location, vii, 3, 4, 5, 27, 44, 142, 162 logging, 18 London, 54, 107, 110, 111, 113, 116, 129 losses, 21

Copyright © 2009. Nova Science Publishers, Incorporated. All rights reserved.

M Macau, 90, 129, 131, 147 machinery, 28, 41, 64, 66, 78, 79, 81, 82, 84, 94, 97, 99, 101, 102 macroeconomic, 47 magnetic, iv mainstream, 120 maintenance, 7, 103 major cities, 77 Malaysia, 23, 68 males, 75 management, 6, 8, 53, 77 man-made, 97 manufacturer, 112 manufacturing, 71, 72, 73, 78, 81, 84, 93, 95 marginalization, 123 market, 7, 11, 17, 36, 50, 63, 68, 69, 70, 72, 74, 75, 83, 92, 93, 97, 99, 102, 103, 108, 129 market economy, 17, 68, 72, 75, 102, 103 market prices, 69 market value, 63 markets, 37, 47, 68, 70, 71, 74, 75, 83, 93, 95, 97, 101, 102, 105, 106, 108, 154 Marxist, 130 mass-transport, 13 measures, 13, 16, 22, 26, 50, 51, 52, 64, 68, 74, 89, 97, 107, 152, 166 meat, 97 media, 18, 25, 31, 33, 35, 56, 57, 89, 120, 121, 122 mediation, 8, 9, 10, 51 medicine, 79, 94 megawatt, 104, 157 melons, 88 melting, 39 membership, 91, 108, 109 men, 146, 161 merchandise, 80, 81, 84, 92, 93, 97

181

metals, 78, 84 methamphetamine, 89 metric, 64, 99 Mexico, 90 MIA, 114 microbial, 111 middle class, 71 Middle East, 89, 114, 129 migrant, 18 migrant workers, 18 migrants, 95 military, 1, 5, 6, 7, 13, 15, 16, 25, 26, 30, 33, 36, 39, 42, 43, 44, 45, 46, 47, 50, 57, 63, 66, 67, 68, 70, 71, 72, 73, 74, 80, 81, 84, 88, 89, 93, 95, 97, 99, 101, 102, 103, 105, 106, 107, 111, 117, 120, 122, 124, 130, 131, 134, 137, 140, 141, 142, 144, 145, 146, 147, 153, 155, 156, 160, 161, 162, 163, 169, 170 military aid, 7, 16, 30, 43 military spending, 68 Millennium, 55 mineral resources, 80 minerals, 66, 73, 77, 79, 81, 84 mines, 84 minimum wage, 78 mining, 13, 73, 74, 77, 79, 80, 81 Minnesota, 60 mirror, 81, 82, 121 missile defense, 25, 26 missile launches, 129 missiles, 10, 15, 23, 44, 46, 88, 98, 102, 105, 106, 121, 129, 130, 131, 136, 138, 140, 141, 143 missions, 25, 39 Mississippi, 66 misunderstanding, 143 models, 34 modernization, 7, 17 mold, 78 molybdenum, 73, 77, 80 momentum, 14 money, 17, 24, 26, 36, 71, 86, 88, 90, 99, 145, 164 money laundering, 90 Mongolia, 123 mood, 162 morale, 145 moratorium, 23 morning, 130 Moscow, 3, 7, 9, 12, 13, 14, 15, 16, 17, 18, 19, 20, 30, 38, 43, 45, 46, 47, 53, 55, 56, 57, 99, 100, 101, 163 mothers, 68 motion, 132 mouse, 134

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

182

Index

movement, 23, 50, 53, 71, 123, 153, 154 multidimensional, 12 multilateral, 6, 9, 10, 15, 27, 34, 35, 39, 52, 53, 85, 86, 87, 107, 119, 123, 137, 142 multilateral aid, 39 multilateralism, 8, 53 multiplier, 51 mushrooms, 99

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N Namibia, 99 narcotics, 28, 70, 89, 131, 134, 147 nation, 3, 5, 7, 36, 37, 49, 90, 95, 106, 108, 128, 130, 131, 164 national identity, 6, 19, 25, 29, 36, 37, 38, 42, 46, 47 national income, 54, 69, 71 national interests, vii, 3, 4, 39, 101, 105, 128 national security, 5, 14, 26, 45, 62, 90, 102, 133, 154 National Security Council, 58 National Security Strategy, 34, 116 National Strategy, 111 nationalism, 24, 159, 166 NATO, 14, 15, 20, 168 natural, 18, 47, 50 natural resources, 18, 50 Navy, 25, 168 NC, 55 NEA, 4, 5, 6, 15, 20, 29, 44, 51 neck, 146 nefarious, 134 negative consequences, 146 negotiating, 8, 9, 35, 53, 66, 106, 109, 120, 128, 138, 143, 144, 147, 158 negotiation, 17, 43, 44, 45, 61, 157 nervousness, 45 Netherlands, 85 network, 16, 77, 99, 129, 164 New York, 2, 31, 54, 55, 56, 57, 58, 59, 60, 61, 62, 91, 108, 110, 113, 115, 116, 129, 131, 163, 170, 171 New York Times, 54, 59, 60, 61, 115, 116, 131 newspapers, 91, 92 Ni, 141 Nixon, 55 nongovernmental, 30 non-human, viii, 119 non-nuclear, 106 nonproliferation, 103, 165 normal, 45, 75, 90, 108, 133 normalization, 3, 8, 13, 20, 21, 22, 23, 24, 25, 26, 29, 30, 31, 32, 33, 39, 45, 65, 67, 68, 102, 104, 106, 107, 108, 109, 120, 123, 128, 137, 141

North Atlantic Treaty Organization, 14 Northeast Asia, vii, 2, 3, 4, 6, 8, 10, 13, 16, 21, 25, 30, 35, 42, 44, 48, 52, 53, 54, 55, 56, 57, 58, 61, 107, 111, 112, 113, 116 Norway, 85, 86, 87 NPR, 112 NPT, 6, 16, 23, 31, 33, 45, 139, 140 NSC, 6 nuclear, vii, viii, 2, 4, 5, 6, 7, 8, 9, 10, 14, 16, 17, 19, 22, 23, 24, 25, 26, 29, 31, 33, 34, 35, 36, 37, 40, 41, 43, 44, 45, 46, 51, 52, 53, 57, 58, 59, 62, 63, 64, 65, 66, 67, 72, 77, 78, 82, 86, 87, 88, 90, 91, 93, 94, 95, 96, 97, 98, 100, 101, 102, 103, 104, 105, 106, 107, 115, 119, 120, 121, 122, 123, 127, 128, 129, 130, 131, 132, 133, 134, 135, 136, 137, 138, 139, 140, 141, 142, 143, 144, 146, 147, 148, 153, 154, 155, 156, 157, 158, 159, 160, 161, 163, 164, 165 nuclear arms race, 107, 129, 136, 139 nuclear energy, 31 nuclear material, 138, 144 nuclear power, 16, 66, 94 nuclear power plant, 16, 94 nuclear program, vii, 5, 17, 23, 24, 26, 31, 34, 35, 46, 52, 53, 63, 64, 65, 72, 82, 87, 88, 93, 104, 107, 122, 129, 133, 136, 137, 138, 139, 142, 144, 147, 154, 155, 165 nuclear reactor, 24, 67, 72, 86, 115, 155 nuclear talks, 16, 91 nuclear technology, 115, 131 nuclear threat, 36 nuclear weapons, viii, 7, 17, 23, 24, 26, 29, 31, 33, 34, 35, 37, 46, 52, 58, 64, 66, 67, 72, 96, 97, 100, 101, 103, 104, 106, 107, 119, 120, 123, 128, 131, 133, 134, 135, 136, 137, 139, 140, 141, 142, 146, 147, 156, 158, 159, 160, 163, 164, 165

O obligations, 39 OECD, 85, 86, 87, 113 offenders, 89 Official Development Assistance, 85, 86 Ohio, 171 oil, 12, 17, 29, 31, 47, 65, 67, 68, 75, 86, 90, 97, 101, 104, 133, 136, 137, 138, 140, 142, 144, 145, 152, 156, 157, 164, 165 oil spill, 29 older people, 168 on-line, 85 open markets, 63, 75 openness, 49 operator, 77

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

Index opinion polls, 168 opium, 89 opposition, 12, 20, 26, 67, 121, 169 Oregon, 171 ores, 73, 77, 80, 84, 97 organ, 50 organic, 92, 111 organic chemicals, 92 Organisation for Economic Co-operation and Development, 86 organization, 20, 28 organizations, 22, 23, 75, 86, 87, 89, 109 orientation, 51, 70 orthodox, 50 outrage, 122 oversight, 64 overtime, 78 ownership, 68, 72

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P Pacific, 6, 20, 21, 44, 45, 54, 56, 58, 61, 95, 100, 103, 110, 113, 116, 117, 122, 129, 130, 131, 136, 139, 141, 154, 155 pain, 165 Pakistan, 45, 88, 107, 131 Pakistani, 143 Panama, 44 paper, 45, 101 Paper, 11, 19, 21, 56, 60, 62, 110, 111, 112, 113, 116, 124 paradigm shift, 34 paradox, 43 paradoxical, 10, 39 parents, 122 Paris, 163 passenger, 28 Patriot Act, 90 PATRIOT Act, 115 pay off, 18 peace process, 15, 38 peace treaty, 91, 96, 106, 107 Pentagon, 59 per capita, 49, 69, 84, 95 per capita income, 95 perception, 3, 49, 51, 122 perceptions, 37 performance, 43, 63, 67, 68, 75 periodic, 26 permit, 52 personal, 14, 15, 31, 49, 71, 108, 130 Peru, 97 petroleum, 17, 66, 68, 97, 99

183

petroleum products, 17 philosophy, 42, 50, 107 phone, 77 planned economies, 105 planning, 4, 68, 72, 79 plants, 28, 41, 42, 47 plastic, 97 play, 17, 21, 22, 27, 35, 43, 44, 46, 123, 130, 145, 155, 158 plutonium, 24, 32, 104, 128, 130, 132, 136, 138, 140, 141, 142, 143, 144 Poland, 86 police, 97, 168, 169 policy initiative, 20 policy instruments, 101 policymakers, 6, 15, 27, 45, 51 political parties, 121 political power, 72 political stability, 26 politicians, 120, 121 politics, vii, viii, 3, 4, 6, 7, 8, 12, 13, 19, 20, 24, 30, 38, 39, 42, 44, 72, 119 poor, 3, 63, 65, 67, 105 population, 4, 18, 64, 66, 68, 70, 74, 75, 97, 102, 145, 159, 162, 168 porous, 102 ports, 19, 29, 98, 105 post-Cold War, 1, 51 posture, 8, 13, 32, 46 potato, 74 potatoes, 74 poverty, 49 poverty trap, 49 powder, 44 power, 2, 4, 5, 6, 7, 10, 13, 14, 15, 16, 25, 26, 37, 39, 43, 44, 45, 46, 49, 51, 54, 56, 61, 63, 66, 69, 70, 71, 72, 73, 74, 78, 80, 84, 94, 101, 102, 103, 117, 123, 130, 131, 145, 167 power plant, 74, 101 power plants, 101 powers, 5, 24, 43, 44, 52, 145, 146, 147, 148, 159, 160, 161 PPI, 110 PPP, 54, 66, 69, 70, 110 pragmatic, 15, 95, 100 preference, 44, 162 preferential treatment, 78, 109 preparedness, 47 presidency, 30, 56 president, vii, 2, 3, 15, 38, 45, 50, 61, 122, 142 President Bush, 33, 35, 65, 89, 91, 104, 122, 142 President Clinton, 136, 137, 140, 141, 142, 145, 163 President Vladimir Putin, 14, 39

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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184

Index

pressure, 16, 22, 23, 24, 31, 35, 45, 66, 67, 70, 101, 103, 106, 120, 132, 134, 139, 143, 145, 153, 157 prestige, 104 preventive, 26, 35 prices, 47, 50, 63, 65, 69, 70, 74, 75, 97, 99 primacy, 30 primary products, 84 private, 12, 50, 70, 71, 72, 74, 86, 105 private property, 50 privation, 66, 74, 102, 105 proactive, 37 probability, 101, 135, 138, 144 probe, 14 production, 24, 65, 68, 71, 72, 73, 74, 75, 78, 79, 80, 81, 84, 89, 102, 136, 140, 141, 143 profit, 50, 130, 133 profits, 72, 75 program, viii, 8, 15, 24, 25, 26, 29, 32, 34, 35, 41, 46, 63, 64, 65, 66, 67, 72, 88, 90, 104, 105, 106, 107, 110, 119, 123, 133, 136, 137, 138, 139, 140, 141, 142, 143, 144, 147, 153, 154, 155, 158 proliferation, 45, 64, 90, 96, 101, 102, 105, 106, 107, 120, 128, 129, 130, 131, 132, 145, 148, 155 promote, 4, 49, 103, 106, 161 propaganda, 42, 108 property, 50 proposition, 45 prosperity, 8, 106, 129 prostitution, 147 protection, 6, 16 provocation, 8, 30 PSI, 25, 33, 154 public, 21, 22, 24, 29, 34, 35, 45, 62, 71, 99, 108, 120, 121, 122, 123, 131, 170 public domain, 62 public opinion, 22 public policy, 34 public service, 170 public support, 21 public view, 122 Puerto Rico, 171 punishment, 89 punitive, 107 purchasing power, 5, 54, 66, 69, 70 purchasing power parity, 5, 54, 66, 69 Putin, 14, 15, 16, 17, 18, 55

Q questioning, 124, 160

R race, 13 radical, 33 radio, 42, 133 rail, 14, 18, 19, 42, 101 range, 10, 12, 25, 43, 69, 120, 122, 123, 131, 136, 137, 138, 141, 143 raw material, 41, 42, 73, 84, 99 raw materials, 41, 42, 73, 84, 99 realism, 24, 57 realist, 5, 42, 44 reality, 133 reasoning, 131 recognition, 13, 20, 26, 28, 30, 33, 38, 39, 75, 105 reconciliation, 38, 42, 122 reconstruction, 14, 17 recovery, 44, 65, 69, 73, 79, 110 Red Cross, 22, 38 reduction, 26, 39, 165, 166 reef, 145 reforms, vii, 20, 49, 51, 63, 64, 67, 68, 70, 74, 75, 99, 103, 112 refugees, 12, 45, 53, 63, 67, 70, 95, 97, 101, 105, 120, 146, 156, 159, 169 regional, vii, viii, 2, 4, 5, 6, 8, 10, 18, 19, 21, 27, 30, 53, 102, 119, 129, 139, 145 regional cooperation, 19 regionalism, 53 regular, 50, 89, 108 regulations, 75 rehabilitation, 93 reinforcement, 136, 140 relationship, 3, 7, 14, 22, 25, 29, 30, 42, 43, 50, 52, 96, 99, 101, 108, 120, 122, 134, 153, 158, 160, 161, 168, 169 relationships, 30, 64, 67, 95, 146, 166 relatives, viii, 88, 119, 121 relevance, 16 reliability, 81 remittances, 64, 70, 84, 88, 99 renormalization, 10, 14, 20 rent, 129 repair, 73, 90 repatriation, 122 reprocessing, 132, 137, 140, 142, 155 Republican, 169, 171 Republicans, 158 reputation, 123 rescission, 65 research, 2, 15, 25, 62, 139, 143 researchers, 159 reserves, 6, 57, 79, 84

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

Copyright © 2009. Nova Science Publishers, Incorporated. All rights reserved.

Index residential, 109, 117 resilience, 43 resistance, 66, 72 resolution, 16, 21, 23, 25, 26, 27, 45, 52, 53, 57, 65, 96, 100, 105, 106, 107, 122, 123, 134, 143, 156 resources, 8, 17, 18, 27, 33, 43, 45, 47, 50, 63, 67, 72, 74, 77, 80, 95, 103, 129 responsibilities, 23 restructuring, 166 retaliation, 102, 163 reunification, 4, 7, 14, 21, 27, 40, 41, 52, 93, 106, 107, 108, 153 revenue, 147 revolutionary, 42, 47, 68, 71 rewards, 70 rhetoric, 9, 123, 130, 140 rice, 12, 21, 50, 57, 72, 75, 153 risk, 8, 44, 52, 67, 90, 97, 107, 141 risks, 2, 4, 37, 53 rivers, 102 roadmap, 31 rocky, 123 rods, 24, 31, 104, 137, 142 rolling, 96 rural, 75 Russia, vii, 1, 3, 5, 7, 13, 14, 15, 16, 17, 18, 19, 24, 34, 48, 51, 52, 56, 57, 63, 64, 74, 81, 82, 85, 86, 87, 98, 99, 100, 101, 102, 103, 105, 106, 107, 108, 110, 114, 115, 116, 128, 141, 142, 146, 152 Russian, 14, 15, 16, 17, 18, 19, 20, 39, 55, 56, 57, 68, 74, 99, 100, 101, 116, 147, 155 Rwanda, 167

S sabotage, 7 Saddam Hussein, 33, 129 safeguard, 50 safeguards, 140 safety, 28, 121 salaries, 85 sales, 46, 70, 84, 88, 102, 129, 153 Samoa, 170 sample, 35 Samsung, 94 sanctions, 10, 12, 16, 23, 28, 29, 31, 36, 45, 50, 63, 64, 65, 66, 67, 81, 84, 90, 91, 97, 98, 101, 103, 105, 108, 121, 132, 140, 147, 153, 155 SAR, 50, 77 satellite, 25, 57 scams, 129 scarcity, 70, 72, 105 school, 18, 52, 120, 122

185

seafood, 97, 99 search, 87 searches, 28, 87 Seattle, 54, 58, 62 secret, 39, 49, 50, 169 Secretary of Defense, 9, 32, 34, 45, 127, 135, 139 Secretary of State, 14, 32, 35, 39, 65, 104, 131 securities, 85 security, 2, 4, 5, 6, 7, 9, 10, 14, 15, 16, 20, 21, 23, 24, 26, 27, 31, 33, 34, 37, 39, 42, 43, 44, 45, 46, 53, 54, 60, 62, 66, 75, 90, 100, 101, 102, 103, 106, 109, 120, 122, 123, 127, 128, 129, 132, 133, 141, 154, 165, 166 Security Council, 6, 58, 101, 105, 116, 129, 130 seeds, 94, 170 seizure, 119 seizures, 89 selecting, 130 Self, 25, 26 self-confidence, 16 self-interest, 12 semiconductor, 78 semiconductors, 95 Senate, 58 Senate Foreign Relations Committee, 58 sensitivity, 161 September 11, 32 series, vii, 1, 2, 3, 14, 17, 33, 38, 42, 47, 50, 51, 52, 74, 99, 122, 147 services, 17, 28, 36, 66, 73, 77, 84, 108, 130 Shanghai, 49, 50, 111, 112, 113, 142 shape, 52, 157, 165 shaping, 5 shares, 48, 100 sharing, 95 shellfish, 84 shipping, 84, 109, 169 shock, 25, 29, 38, 39, 47 shocks, vii, 2, 3, 14, 47 shoot, 148 short period, 159 short run, 51 shortage, 18, 65, 80, 112, 154 short-term, 19, 107, 122, 145 Siberia, 18 sign, 21 signals, 49, 168 signs, 52, 123, 170 sine, 46 Singapore, 68, 75, 81, 97 singular, 123 Sino-Soviet, 47 sites, 57, 94, 96

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

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186

Index

small and medium sized enterprises, 77, 95 smelting, 79, 80 smoke, 5 smugglers, 164 smuggling, 18, 19, 28, 88, 89 social exchange, 42 social problems, 160 socialism, 49, 68 socialist, vii, 2, 4, 7, 8, 13, 20, 21, 46, 47, 50, 52, 75 soft loan, 22 software, 90 solidarity, 20 South Carolina, 171 Southeast Asia, 51 Southern Hemisphere, 163 sovereignty, 2, 4, 6, 15, 20, 33, 34 Soviet Union, vii, 1, 2, 3, 7, 13, 14, 17, 20, 24, 30, 47, 49, 68, 97, 99, 130, 139, 158, 159, 163 Spain, 88 specificity, 36 specter, 4 speculation, 4, 18, 49, 65 speech, 95 speed, 39, 40, 137, 143 spillovers, 42 spills, 29 sponsor, 109, 117 sporadic, 76 sports, 30 stability, 7, 14, 26, 29, 50, 97, 106, 129, 162, 165, 169 stabilize, 42, 159 stages, 77 stakeholder, 158 standard of living, 67, 102 standards, 102, 103, 130 starch, 91 starvation, 63, 64, 67, 68, 70, 74, 158, 167 State Department, 30, 33, 36, 58, 64, 65, 89, 90, 104, 122, 164 state-owned, 68, 77 statistics, 11, 70, 80, 81, 110, 116, 159 steel, 79, 94, 97, 99, 101 stimulus, 96 stock, 73, 86, 96 storage, 137, 143 strategies, 44, 46, 103, 137, 141 strength, 2, 4, 71, 145, 162 stress, 72, 146 strikes, 25, 45, 57, 104 strokes, 5 students, 18, 166 Sudan, 69, 167

suffering, 26, 32, 156 sugar, 70 suicide, 122, 136, 139, 145 summer, 25, 33, 68, 70, 129, 168 supernatural, 71 superpower, vii, 2, 3, 6, 21, 43 supervisors, 41 suppliers, 81 supply, 17, 31, 78, 84, 95, 100, 105, 136, 138, 140, 144, 155 Supreme People’s Assembly, 72 surgical, 45, 156 surging, 40, 42 surplus, 11, 12 surprise, 21, 22, 35, 120, 147 survival, 5, 8, 12, 15, 33, 43, 44, 45, 46, 49 surviving, 22, 24 Sweden, 85, 86, 87 switching, 157 Switzerland, 86, 108, 110 symbolic, 122 sympathetic, 168 sympathy, 31 Syria, 88, 167 systems, 6, 38, 40, 44, 101, 159

T tactics, 43, 147, 153, 164 Taiwan, 5, 6, 68, 96, 129, 147, 162 Taiwan Strait, 147 tanks, 44 targets, 52, 70, 75, 102, 141 tariffs, 90 taxation, 28 taxes, 78 team leaders, 78 technical assistance, 17 technology, 13, 17, 21, 41, 47, 57, 70, 74, 79, 80, 84, 115, 129, 131, 139, 143, 154, 155 technology transfer, 17, 21, 41, 115 telecommunications, 36 telecommunications services, 36 telephone, 77 television, 41, 75 Tennessee, 135, 171 tension, 39, 98, 103, 106, 145 tenure, 23, 45, 140 term plans, 25 territorial, 7, 25 territory, 19, 44, 101, 146 terrorism, viii, 25, 26, 36, 65, 90, 91, 102, 109, 115, 117, 119, 122, 131

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

Copyright © 2009. Nova Science Publishers, Incorporated. All rights reserved.

Index terrorist, 10, 32, 102, 107, 115, 135, 145, 156, 163, 164 terrorist attack, 32 terrorist groups, 102, 115, 135 terrorists, 163 testimony, viii, 88, 89, 119, 129, 132, 135, 136, 139, 153, 155, 159, 169, 170 Texas, 25, 171 textiles, 28, 66, 78, 84, 94 Thai, 57 Thailand, 48, 68, 81, 82, 83, 86, 101 thawing, 137, 142 The Economist, 55, 111 thinking, 8, 30, 49, 51, 53, 153 third party, 138, 144, 163, 164 threat, 3, 20, 22, 26, 27, 30, 31, 33, 34, 36, 45, 51, 66, 70, 80, 90, 102, 120, 127, 128, 129, 135, 137, 139, 141, 144, 145, 154, 164, 165 threat of force, 144 threatened, 13, 24, 32, 44, 123, 165 threatening, 27, 102 threats, 16, 45, 123, 140, 145 threshold, 5 tides, 145 tiger, 45 timber, 17, 18 time pressure, 120 timing, 81 Tokyo, 10, 12, 18, 20, 21, 22, 23, 24, 25, 28, 29, 31, 32, 39, 45, 50, 52, 53, 57, 58, 98, 99, 111, 114, 120, 121, 122, 124, 129, 164 torture, 165 total product, 74 tourism, 50, 76, 94 tourist, 36, 65, 76 trade, 3, 5, 10, 11, 12, 18, 19, 20, 26, 28, 29, 30, 31, 36, 38, 40, 41, 47, 48, 50, 52, 63, 64, 66, 67, 68, 70, 71, 76, 77, 78, 80, 81, 82, 83, 84, 86, 88, 89, 90, 91, 92, 93, 95, 97, 98, 99, 101, 102, 103, 105, 106, 107, 108, 113, 116, 131, 133, 146, 148, 153, 155, 165, 167 Trade Act, 36 trade agreement, 90, 108 trade deficit, 11, 47, 52, 64, 81, 84, 88, 103, 133 trade liberalization, 68 trade policy, 165 trade-off, 66, 148, 155 trading, 28, 29, 40, 41, 42, 50, 64, 67, 70, 71, 75, 81, 84, 89, 97, 98, 101, 108, 154, 155 trading partners, 67, 81, 98, 108 Trading with the Enemy Act, 63, 65, 90, 104, 109, 117 tradition, 71

187

traffic, 28, 89, 121 training, 23, 139 trajectory, 20 trans, 18, 100 transaction costs, 42 transactions, 11, 12, 31, 36, 71, 75, 81, 86, 90, 97 transfer, 21, 41, 138, 144 transformation, 30, 147, 148, 159, 160 transition, 6, 102, 103, 109 transitional economies, 49 transmission, 78, 80 transparency, 16 transport, 99 transportation, 5, 13, 50, 76 transportation infrastructure, 5 travel, 19, 36, 42, 75, 93, 105 Treasury, 90, 115, 131 Treasury Department, 131 treaties, 14 trend, 145, 146 trucks, 99 trust, 15, 36, 100, 153 turbulent, 3, 10, 52, 141 Turkey, 51

U U.N. Security Council, 101, 129 U.S. Department of the Treasury, 115 U.S. Export-Import Bank, 109 U.S. history, 36 U.S. military, 15, 66, 89, 102, 103, 122, 124 U.S. Treasury, 90 UK, 85 Ukraine, 158, 167 UN, 6, 13, 27, 31, 35, 38, 85, 97, 105, 111, 112, 116 uncertainty, 46 unfolded, 33, 137, 142 unification, 38, 39, 42, 52, 101, 148, 161 unilateralism, 8 unions, 88, 99, 166 United Kingdom, 87 United Nations, 6, 68, 76, 81, 83, 97, 99, 105, 108, 113, 116, 129, 130, 143, 153 United Nations Development Program, 129 United Nations High Commissioner for Refugees, 116 unpredictability, 6 uranium, 8, 137, 142, 143, 147, 155 USSR, 13, 21, 99 Uzbekistan, 69

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest

188

Index

V validation, 9 values, 63, 69, 95, 102, 110, 165 variables, 43 vehicles, 44, 90, 97, 99, 101, 147 vein, 62 venue, 76, 144 vessels, 29, 88 victims, 22, 121, 122 Vietnam, 30, 43, 45, 49, 108, 112, 117, 123, 147, 168 Vietnam War, 43, 45, 147 Vietnamese, 45, 74, 112, 159 village, 167 Villagers, 116 violence, 148 violent, 164, 166 vision, 20 voice, 121, 123 voting, 169 vulnerability, 25, 45, 153

Copyright © 2009. Nova Science Publishers, Incorporated. All rights reserved.

W wages, 18, 50, 74, 75, 78, 85 Wall Street Journal, 113, 114 war, 5, 8, 13, 14, 15, 21, 25, 26, 31, 33, 35, 37, 43, 45, 46, 47, 72, 102, 104, 130, 131, 136, 140 war on terror, 25, 37 warfare, 29 warlords, 146, 159 Washington Post, 55, 58, 114, 131, 143, 144 watches, 75, 78 water, 31, 52, 73, 86, 94, 115, 136, 140, 141, 143, 145, 157, 165 weakness, 2, 4, 19 wealth, 44, 108 weapons, 13, 16, 17, 21, 33, 46, 52, 61, 67, 89, 90, 99, 101, 102, 103, 105, 106, 119, 129, 136, 140, 143, 145, 148, 154, 158, 159 weapons of mass destruction (WMD), 21, 24, 25, 46, 89, 90, 101, 102, 105, 115, 145, 164 welfare, 60 well-being, 102

Western countries, 15 Western-style, 20, 75 wheat, 12, 68, 92 White House, 91, 115, 116, 117, 122, 157 wholesale, 75 wind, 162 wine, 15 winter, 68, 74, 102 wisdom, 42, 44, 102, 134, 135 withdrawal, 9, 28, 31, 33 witnesses, 128, 129, 131, 132, 135, 155, 157, 161, 164, 165, 169 women, 75, 161 wood, 97, 101 wool, 90, 99 work ethic, 49 workers, 18, 19, 32, 64, 73, 75, 77, 78, 84, 95, 114, 115 Workers Party, 170 workforce, 18, 32 working class, 71 working conditions, 78 working groups, 123 World Bank, 49, 54, 61, 91, 108, 110 World Development Report, 54, 61 World Food Program (WFP), 25, 67, 68, 85, 97, 99, 110, 111 World War II, 21, 24, 26, 72, 88, 90, 123 worry, 164

X Xinhua News Agency, 58

Y Yemen, 88, 97 yield, 44, 51, 133, 134, 135, 143, 165 yuan, 79, 80 Yugoslavia, 15

Z Zimbabwe, 69 zinc, 36, 73, 77, 80

North Korean Foreign Relations in the Post-Cold War World, edited by Lyman R. Rechter, Nova Science Publishers, Incorporated, 2009. ProQuest