North Korea elevated the 11-month impasse in the Six-Party Talks to a diplomatic crisis in early October by conducting a test of a small nuclear device. The U.S. responded by calling for the United Nations Security Council (UNSC) to impose harsh sanctions on North Korea “unlike anything that they have faced before.” President George W. Bush explicitly drew a diplomatic red-line that the United States would regard Pyongyang’s “transfer of nuclear weapons or material” to other states or terrorist groups as a “grave threat” that would impliedly bring a U.S. military response.

North Korea’s nuclear test Oct. 9 followed a unanimous statement of the UNSC on Oct. 6 that a nuclear test would “jeopardize peace, stability, and security in the region and beyond.”

In an earlier unanimous resolution, the Security Council condemned North Korea in mid-July for test launching seven missiles and imposed a set of missile-related sanctions on Pyongyang.  Instead of vetoing this measure, as Pyongyang undoubtedly expected, China delivered a major diplomatic shock to North Korea by voting to approve the resolution, which called on UN member countries to prevent transfers of missile technologies and “financial resources” to Pyongyang. For the moment, Washington, Seoul, and Beijing seemed to be speaking with one voice.

At the mid-September summit meeting of President Bush and ROK President Roh Moo-hyun, the two presidents indicated they would follow a “common and broad approach” to the North Korean nuclear issue. President Bush gave his blessing to President Roh’s request for returning operational command of South Korea’s forces during wartime to Seoul. Bush defused opposition to this proposal from South Korean conservatives by promising that U.S. forces would come to South Korea’s aid in an emergency and continue to play an important military support role on the Korean Peninsula.

In two rounds of negotiations this quarter on a U.S.-Korea Free Trade Agreement, U.S. and South Korean trade negotiators put on the table a number of critical issues in manufacturing, services, and agriculture but were only able to reach an apparent agreement on pharmaceuticals. In South Korea, the government is under popular pressure from farmers, labor unions, and business organizations to resist any excessive U.S. demands for opening the Korean market.

UN Security Council condemns North Korea’s missile tests

After boycotting the Six-Party Talks since November 2005 and seeking, without success, to end U.S. financial sanctions, North Korea expressed its political frustration by test launching seven missiles on July 5 (Korea time, coinciding with Fourth of July Independence Day celebrations in the United States). Six of the seven missiles – Scuds and medium-range Nodongs – reached their targets in the Sea of Japan and demonstrated Pyongyang’s capability to hit targets throughout South Korea and in Japan. The seventh – a long-range Taepodong-2 that was theoretically capable of hitting targets in the U.S. – failed after 40 seconds and crashed in an uninhabited area of North Korea.

The missile tests shocked the Japanese and U.S. publics, which had believed assurances that diplomatic pressure – from their own governments and China, in particular – would prevent North Korea from breaking a moratorium on missile tests that Pyongyang had observed for more than five years. Pyongyang’s tests were a diplomatic slap in the face for China, which has invested significant political capital in the success of the Six-Party Talks that it chairs on North Korea’s nuclear program.

Following the missile tests, Japan took the lead in seeking a resolution of the United Nations Security Council to condemn North Korea’s actions. With the strong support of the U.S. – and most significantly, the approval of China and Russia – the Security Council unanimously adopted a resolution of condemnation July 15 by a vote of 15-0.

In addition to demanding that North Korea “suspend all activities related to it ballistic missile programme and…re-establish its [commitment] to a moratorium on missile launching,” the resolution required all UN member states to prevent transfers of missile-related technologies and “financial resources” for missile programs to Pyongyang.  The resolution also put the Security Council on record as urging North Korea to “return to the Six-Party Talks without precondition” and “abandon all nuclear weapons and existing nuclear programs.”

North Korea appeared shocked by the direct Security Council condemnation of both its missile and nuclear programs. In the past, Pyongyang has said it would regard any imposition of UN sanctions as an “act of war.” Forty-five minutes after the Security Council passed the resolution, North Korea’s Ambassador to the United Nations Park Gil-yon accused the Council of “unjustifiable and gangster-like” action.  He said that “the delegation of [the] Democratic People’s Republic of Korea resolutely condemns the attempt of some countries to misuse the Security Council for the despicable political aim to isolate and put pressure on the DPRK, and totally rejects the resolution.”

During negotiations on the wording of the resolution, China assisted North Korea by excluding any reference to Chapter 7 of the UN Charter, which would authorize military measures to enforce actions of the Security Council.  Nevertheless, China’s ultimate vote in favor of the resolution must have come as a heavy blow to Pyongyang.

Shortly after the passage of the UN Security Council resolution, a U.S. Treasury official indicated the U.S. was weighing whether to reimpose sanctions on North Korea – with respect to travel, trade, and investment – that had been lifted more than five years earlier, in June 2000, as part of the Clinton administration’s policy of “engagement” with Pyongyang. According to the Treasury Department’s undersecretary for terrorism and financial intelligence, Stuart Levey, the sanctions would help block the flow of “financial resources” that North Korea might use for its missile and nuclear programs.

Looking for a way to coax North Korea back to the Six-Party Talks, U.S. and South Korean diplomats sought to arrange an informal meeting of the parties at the ASEAN Regional Forum (ARF) in Kuala Lumpur, Malaysia in late July, which Pyongyang’s foreign minister, Paek Nam-sun, planned to attend. Instead of joining a meeting on the nuclear issue, however, Foreign Minister Paek defiantly announced that North Korea would not rejoin the Six-Party Talks until Washington dropped its financial sanctions. Ten foreign ministers representing nations at the ARF session nevertheless went ahead with a side meeting to discuss Northeast Asia Security issue. Meanwhile, the ARF chairman’s statement criticized Pyongyang’s recent missile tests and urged it to return to the Six-Party Talks.

The U.S. continued applying pressure against North Korea after the ARF meeting. Undersecretary Levey sought the help of other countries in denying Pyongyang access to their financial institutions. Levey said Washington believes that North Korea’s leaders are hiding “significant amounts” of illicit funds in foreign banks and therefore the U.S. would “encourage financial institutions to carefully assess the risk of holding any North Korea-related accounts.”

The U.S. also proposed that if Pyongyang was unwilling to rejoin the Six-Party Talks, the remaining five parties should meet anyway to discuss the nuclear issue. Moving to block this effort to further isolate North Korea, China refused to go along. A Foreign Ministry spokesman said that “North Korea is the most directly involved party in the nuclear issues. Our stance is that the five-way format will not be helpful in resuming and developing the Six-Party Talks.”

North Korea threatens an underground nuclear test

North Korea reacted to the UNSC resolution and increasing U.S. diplomatic pressure by triggering a symbolic incident at the demilitarized zone (DMZ) and making preparations for an underground nuclear test that were monitored by U.S. satellites. On July 31, North Korean soldiers along the DMZ fired at least two shots toward a South Korean guard post. The South Koreans responded with six shots of their own. A representative of South Korea’s Joint Chiefs of Staff subsequently said that the UN Armistice Commission, which controls the DMZ, would investigate the incident. South Korean political and foreign ministry officials did not publicly comment on the exchange of fire.

Far more serious, from a diplomatic standpoint, were persistent reports, beginning in mid-August that North Korea was preparing to conduct an underground nuclear test to demonstrate its nuclear capability. ABC News first reported in mid-August that U.S. intelligence believed there was a “real possibility” of a nuclear test and the London Sunday Telegraph indicated in early September that “Russian diplomats [in Pyongyang] believe it is now highly probable that North Korea will officially join the nuclear club by carrying out its first underground test of an atomic device.” The British newspaper quoted a Russian diplomat as saying that North Korean leader Kim Jong-il had been “irritated” by U.S. financial sanctions.

South Korea reacted to the threat of a North Korean nuclear test more seriously than it did to Pyongyang’s test launch of seven missiles in early July.  In the days leading up to the summit meeting of Presidents Roh and Bush in mid-September, Foreign Minister Ban Ki-moon told journalists that Seoul had initiated contingency planning for a possible nuclear test: “We need to think of a policy corresponding to the principle that we do not allow the North to have nuclear bombs. Regarding this matter, our government has already begun to review a detailed action plan.”

Ban’s statement signaled North Korea that Seoul would join the U.S. and Japan in seeking harsh measures against Pyongyang, should it go ahead with a nuclear test. Such a South Korean response would have a disastrous impact on inter-Korean relations which have remained largely unaffected, thus far, by the impasse in the Six-Party Talks.

A successful summit

At their summit meeting on Sept. 14, the two presidents avoided any dispute over differing approaches to North Korea and agreed to intensify consultations on a so-called “common and broad approach” for restarting the Six-Party Talks. They did not, however, issue any joint statement or publicly detail any specific measures they would pursue to this end.

Rather than stressing diplomatic sanctions against Pyongyang, Bush spoke of potential benefits for North Korea if it returns to the nuclear negotiations: “First and foremost, the incentive is for Kim Jong-il to understand there is a better way to improve the lives of his people than being isolated – the stability in the region is in his interest.”

During the summit, President Bush also expressed support for President Roh’s policy of regaining operational command over South Korea’s armed forces during wartime. Control of South Korean forces currently remains with the commander of U.S. forces in Korea. Bush helped defuse opposition to this policy from conservatives in South Korea who fear a weakening of the U.S.-South Korea alliance when he said that South Korea should not worry about U.S. assistance during an emergency. Bush declared “my message to the Korean people is that the United States is committed to the security of the Korean Peninsula.”

Roh and Bush also reviewed at length the status of negotiations on a U.S.-South Korea Free Trade Agreement (KORUS FTA). Roh reportedly told Bush that he hoped the FTA talks would progress quickly but neither government released any detailed information about the contents of the summit talks on this issue.

At the end of September, both North Korea and the U.S. slightly modified their negotiating positions on the Six-Party Talks for tactical advantage. North Korea stressed to visiting U.S. scholar Selig Harrison that rather than conduct an underground nuclear test during the negotiating impasse, Pyongyang would unload more fuel rods from its five-megawatt reactor in Yongbyon so it could extract additional weapons-grade plutonium. The North Korean position aimed to increase pressure on the U.S. to relax its financial sanctions by demonstrating that further delay in the Six-Party Talks was not on the U.S. side. North Korean Ambassador Kim Gye-gwan reportedly told Harrison that “we already have operating nuclear weapons, so we don’t need to conduct a test.”

For its part, the U.S. demonstrated a new degree of procedural flexibility to Pyongyang, after exerting relentless pressure through financial sanctions and the UN Security Council resolution it strongly endorsed. U.S. Ambassador to South Korea Alexander Vershbow suggested in a news interview that Ambassador Christopher Hill, U.S. delegate to the Six-Party Talks, could visit North Korea even before the next negotiating round, once Pyongyang indicates it will rejoin the talks. This trip would allow bilateral negotiations that North Korea has sought with the U.S. on the issue of financial sanctions. Previously, the U.S. indicated it would only discuss the financial sanctions with North Korea on the margins of the Six-Party Talks.

Ambassador Hill also strived for a breakthrough in the nuclear negotiations by saying that they will enter a “crucial phase” in coming weeks. He told a Washington conference on Sept. 27: “When things are stopped for so long, you really want to find ways to restart them.” Hill’s words reinforced the announcement by Secretary of State Condoleezza Rice, two days earlier, that she would soon tour Asian capitals to see whether or not “one last push” can get the Six-Party Talks back on track.

On Oct. 3, North Korea electrified the international community by declaring it “is set to conduct a nuclear test in the future…” A statement carried by North Korea’s Korean Central News Agency (KCNA) said that “the U.S. extreme threat of a nuclear war and sanctions and pressure compel the DPRK to conduct a nuclear test, an essential process for bolstering [our] nuclear deterrent, as a corresponding measure for defense.” The North Korean announcement evidenced a radical change in position from a week earlier when Pyongyang stressed it would continue to reprocess nuclear material and discounted the need for a nuclear test.

The most likely explanation for North Korea’s altered position is that Washington brushed aside and downplayed its previous threat to reprocess.  Pyongyang responded by sharply heightening tensions, which it hopes will compel the U.S. to enter into bilateral talks for ending the financial sanctions which have hit North Korea hard.

Of course, North Korea’s brinkmanship carries with it serious new risks, for Pyongyang above all.  In the strongest rhetorical threat to North Korea in over a decade, Ambassador Hill said “we are not going to live with a nuclear North Korea… [North Korea] can have a future or it can have these weapons. It cannot have both.”

On Oct. 6, the U.N. Security Council adopted a joint statement that expressed “deep concern” over a possible North Korean nuclear test and warned it would take punitive actions in the event Pyongyang carried through on its threat. The UNSC statement said that a nuclear test would “jeopardize peace, stability and security in the region and beyond.”

Bush endorses wartime operational command transfer

Despite mounting domestic opposition in South Korea, the U.S. and South Korea moved forward this quarter on finalizing President Roh’s proposal to transfer wartime operational command of Seoul’s armed forces back to South Korea. For South Korea, the transfer would signify recognition of the country’s independent defense capabilities and affirm its equal role within the U.S.-South Korea alliance.

At the Sept. 14 summit, President Bush endorsed the transfer by 2012, although the U.S. military indicated in early September that it would be prepared to complete the transfer by 2009. A final roadmap for the transfer is being drawn up by working-level military officials and will be announced at the October Security Consultative Meeting (SCM) of U.S. and South Korean defense ministers.

In addition to President Bush’s explicit commitment that the U.S. would come to South Korea’s aid in an emergency, the U.S. has agreed to provide advanced intelligence assets to Seoul in the future to ensure no “security vacuum” arises after the transfer. Under a reported tentative agreement, U.S. Forces Korea would continue to operate high-tech surveillance and reconnaissance systems to support South Korea following the transfer, including the KH-12 satellite and U-2 aircraft.

Tough going in FTA negotiations

Negotiating teams from South Korea and the U.S. met twice this quarter, once in mid-July and the second time in early September. With the exception of pharmaceuticals, it appeared they made little or no progress on difficult sectoral issues and encountered a number of obstacles.

When U.S. negotiator Wendy Cutler arrived in Seoul in mid-July, she was met at the airport by hundreds of angry protestors who claimed the U.S. was imposing an FTA on South Korea that would severely harm farmers and vulnerable Korean workers. Demonstrations and confrontations with police continued outside the hotel where the negotiations occurred.

The main accomplishment of the July session was a procedural agreement on a five-tiered lifting of duties for manufactured products. Under this principle, some duties will be lifted immediately by an FTA and others will be eliminated after three, five, or 10 years. A last category of goods – so-called “sensitive items” – would be excluded from future tariff cuts altogether.

The mid-July round of talks ended badly after the U.S. delegation refused to attend a last scheduled session on anti-dumping remedies to protest the South Korean position on pharmaceuticals. Cutler summed up the situation diplomatically: “[Talks on] pharmaceuticals didn’t go as planned. Our group has suspended the negotiations as we believe the talks have not been operating within the spirit of the KORUS FTA.”

By late August, however, in behind-the-scenes contacts, the two sides appeared to resolve the pharmaceutical issue that had driven them apart.  The U.S. said it would accept South Korea’s new drug-pricing policy, which aims to provide quality medicines at relatively low prices. U.S. and South Korean specialists on pharmaceuticals met in Singapore on Aug. 21 to work out detailed procedures for implementing this pricing policy.

At the fourth negotiating session for the FTA, which ran from Sept. 6-9 in Seattle, the U.S. focused its demands on opening South Korea’s agricultural sector within 10 years.  In return, U.S. negotiators said the U.S. would gradually abolish tariffs on Korean-made textiles within the same 10-year period. South Korea countered that rice should be excluded altogether from the FTA and tariffs on other agricultural imports should be lifted gradually over 15 years. The Koreans also insisted that the U.S. open its textile market completely within five years.

The September round ended without even a tentative resolution of these issues.  The two chief negotiators expressed the stalemate in their closing comments.  South Korean chief negotiator Kim Jong-hoon said: “We have not made practical progress on core issues in FTA negotiations with the U.S. so far. While the U.S. side offered a revised tariff offer in merchandise and textiles during the talks, it fell short of our expectations.”

According to chief U.S. negotiator Cutler, “there certainly were areas that tested our skill as negotiators, including those involving tariff reductions in industrial goods, agricultural products and textiles…Frankly, I would have hoped to make more progress this week.”  Cutler summed up the FTA talks as “challenging.”

The top U.S. trade official, U.S. Trade Representative Susan Schwab, made it clear this quarter that the U.S. would not allow South Korea to include products manufactured in the Kaesong Industrial Zone, inside North Korea, in the FTA. Former South Korean President Kim Dae-jung agreed to establish the Kaesong zone in 2000 as part of his Sunshine Policy toward Pyongyang. Within the zone, South Korean companies employ North Korean workers to produce a variety of goods for export. South Korea’s position has been that Kaesong-made products should be covered by a South Korea-U.S. FTA.  Schwab rejected the South Korean position out of hand: “It won’t happen. It can’t happen….It’s not part of the trade agreement,” she said.

Prospects

When North Korea test launched seven missiles at the beginning of this quarter, it relied on the brinkmanship tactics Pyongyang knows so well in a frustrated attempt to break out of financial sanctions the U.S. imposed eight months earlier. North Korea surely believed that China would veto any ensuing UN Security Council resolution and the U.S. would likely seek bilateral negotiations to resolve the issue.

North Korea’s calculations went awry, however, when China voted in favor of a UN resolution of condemnation. China used the vote to express its extreme displeasure with North Korea’s missile tests – which Beijing had worked hard to prevent.  Beyond all else, China believes its diplomatic prestige is at stake in the Six-Party Talks that it chairs, and would like to bring these negotiations to a successful conclusion.

In the aftermath of the UN Security Council resolution, the U.S. and North Korea continued to threaten each other through mid-September. The Bush administration publicly revealed it was seriously considering reimposing economic sanctions on North Korea that President Clinton lifted in June 2000.

For its part, North Korea flaunted to U.S. intelligence-gathering satellites its preparations for an underground nuclear test that would destabilize Northeast Asia. Pyongyang did not seem to realize – or care – that a nuclear test would be welcomed by neo-conservatives in the Bush administration. These hardliners view a nuclear test, correctly, as putting an end to diplomatic efforts for peacefully resolving the nuclear issue and opening up the options for preemptive military strikes or much harsher sanctions that they prefer.

At the summit meeting with President Bush in mid-September, President Roh’s strong lobbying in favor of a continued diplomatic approach by the U.S. seemed to pay off. In his public remarks, Bush rhetorically held out negotiating incentives to Pyongyang. U.S. diplomats showed new procedural flexibility toward North Korea and Secretary Rice indicated she would seek a breakthrough in the Six-Party Talks during her upcoming trip to the region. Pyongyang also seemed to be moving away from the brink of confrontation, by indicating it did not need to test its nuclear weapons.

North Korea’s nuclear test Oct. 9 only served to unify international opposition and further isolate Pyongyang. In a forthcoming resolution, the U.N. Security Council will certainly condemn North Korea in the strongest terms and apply harsh sanctions against Pyongyang, likely including unprecedented inspections of cargo coming into or going out of the country.

Now in the midst of their biggest crisis since June 1994, the U.S. and North Korea have laid out negotiating positions that strikingly mirror each other: the U.S. insists on harsh sanctions to punish Pyongyang for its nuclear test, but says “the diplomatic path is open” for North Korea to obtain “all kinds of benefits” if it returns to the Six-Party Talks. For its part, North Korea threatens to take unspecified “physical actions” in response to continued U.S. pressure, but says it will return to the Six-Party Talks if the U.S. agrees to relax its financial sanctions.

To achieve U.S. policy goals while avoiding circumstances that could spin out of control and lead the U.S. into an unwanted and potentially disastrous military conflict in Korea, the U.S. should, in the opinion of this writer, take several critical measures:

• Authorize Secretary of State Rice to enter into a diplomatic agreement with North Korea that brings Pyongyang back to the Six-Party Talks. Given the critical importance to the United States of a viable diplomatic track with North Korea, the Bush administration should grant Secretary Rice the flexibility that she feels she needs to maintain it.

• Provide concrete detail to North Korea concerning the benefits Secretary Rice promised if Pyongyang dismantles its nuclear weapons program. The degree of detail should match that of the specified punitive measures the U.S. supports if North Korea does not return to the Six-Party Talks.

• Ensure that UN sanctions are perceived by North Korea as representing the will of the international community. The U.S. can accomplish this by playing a behind-the-scenes role in sanctions enforcement, including by relying on other countries to carry out any possible inspections of cargos coming into or going out of North Korea.

• In any U.S. policy decisions, fully take into account the consequences of U.S. actions for South Korea. U.S. policymakers must constantly keep in mind that the central purpose of the U.S.-South Korea alliance is to preserve South Korea’s security and prevent harm from befalling this close U.S. ally of more than 50 years standing.