US-Korea relations in the last quarter of 2010 centered around two major events. On the economic front, even though Presidents Barack Obama and Lee Myung-bak failed to seal a deal on the KORUS Free Trade Agreement (FTA) during their meeting on the margins of the G20 in Seoul, the two countries reached final agreement a few weeks later, potentially opening a new era in bilateral relations pending approval in the two legislatures. Meanwhile, North Korea’s revelation of its uranium enrichment facility and shelling of Yeonpyeong Island raised a real possibility of war on the peninsula. South Korea and the US once again demonstrated their strong security alliance and solidarity even at the risk of a military conflict. North Korea’s artillery attack quelled ongoing diplomatic efforts to resume the Six-Party Talks, as the prospect for early resumption vanished.

G20 Summit and KORUS FTA

The Seoul G20 Summit in November served as a platform for South Korea to project its economic prosperity and leadership in the global economic order. As the first non-G7 and the first Asian country to host the G20, South Korea felt that the summit’s success would be a national achievement that would lift its global economic status. Seoul framed the agenda around currency reform, financial safety nets, International Monetary Fund (IMF) reform, and responsible development assistance. It sought to fill a special niche as a country that could bridge the gap between the developed and developing world given its unique development experiences. The summit was also given importance in the US as it offered an opportunity to forge an international consensus and help form a framework to deal with trade imbalances and currency exchange rate revaluation – issues that were increasingly deepening conflicts with China.

The meeting between President Barack Obama and President Lee Myung-bak on the margins of the G20 was another focal point, as Obama had previously pledged to finalize a deal on the Korea-US Free Trade Agreement (KORUS FTA) during his visit to South Korea.

US Trade Representative (USTR) Ron Kirk and ROK Trade Minister Kim Jong-hoon met twice to resolve their differences on outstanding issues, namely revision of the auto and beef clauses in the 2007 deal. Specifically, the US demanded that South Korea ease market access restrictions for US cars and lift its ban on the import of US beef from cattle more than 30 months old. South Korean negotiators strongly resisted those modifications and made it very clear that beef was not to be discussed given the political sensitivity of the issue in South Korea.

While negotiators were struggling to break the impasse, leaders and government officials from the two countries made repeated calls for cooperation and progress while reiterating their commitments to settle the differences before the summit. At home, President Obama started a domestic campaign to create a favorable atmosphere and garner support for ratification. In his New York Times op-ed, “Exporting Our Way to Stability,” which came out on Nov. 5, Obama emphasized the positive impact of the KORUS FTA on the growth of US exports and jobs, touting the agreement as essential to the revitalization and recovery of the US economy. At the same time, he noted that the agreement should come with the “right terms” and urged South Korea to make concessions on US auto and beef imports.

On Nov. 12, Obama and Lee met on the sidelines of the G20 Summit to hammer out a final deal on the KORUS FTA. But after a prolonged meeting, they announced that they could not reach agreement and needed more time to resolve their differences. In a joint press conference, Obama stated that, “if we rush something that then can’t garner popular support, that’s going to be a problem. We think we can make the case but we want to make sure that case is airtight.” He later said that the auto issue had been a bigger obstacle than beef and assured that both countries would continue to work together to complete their negotiations “within weeks, not months.” Obama’s inability to deliver on his pledge by the self-imposed deadline invited domestic criticisms and was heralded as an “embarrassing setback” and an early manifestation of the president’s weakness after a major setback in the Congressional midterm elections a week earlier. In light of his personal ties with President Lee and confidence in the strength of the US-ROK alliance, leaving Seoul without the KORUS FTA deal undoubtedly disappointed Obama.

A few weeks later, USTR Kirk and Trade Minister Kim reconvened in Columbia, Maryland to resume talks on KORUS. After four days of extended negotiations, the two reached a final accord on Dec. 3 by coming to a compromise on auto issues. Under the revised agreement, US automakers were guaranteed wider access to the Korean market through South Korea’s easing of safety and environmental standards. South Korea agreed to reduce its 8 percent tariff on US cars to 4 percent and allowed the US to maintain the current 2.5 percent tariff on Korean cars. Both countries agreed to eliminate all tariffs on cars in the fifth year after KORUS takes effect. South Korea also allowed the US to delay a phase out of its 25 percent tariff on Korean light trucks. In return, Seoul gained concessions from Washington such as a two-year delay in tariff reductions on US pork and the extension of L-1 visa validity for Korean workers in the US. The US also granted a three-year grace period on Korean generic medicine. Moreover, South Korea successfully kept the beef issue off the negotiation table. Upon hearing about a breakthrough deal on the revised KORUS FTA, President Obama hailed it a “landmark deal” and “win-win for both our countries,” expressing his desire to work with the Congress for its ratification. President Lee also welcomed the news. During his biweekly radio address, he said that conclusion of the KORUS FTA meant forming an “economic alliance” with the US and called for early ratification of the revised agreement by the ROK National Assembly.

The prospect of passage of the revised KORUS deal in the US Congress appears good. President Obama may find the issue a good one on which to work with the soon-to-be Republican-controlled House. The supplemental deal on auto trade also cleared a major obstacle to its ratification as a number of individual lawmakers and auto companies like Ford Motor Company dropped their opposition.  Administration officials who commented on background about the agreement pointed out that prospects of passage were good and that this was the first FTA that had the active support of major US labor unions. Nonetheless, the Republican Party’s congressional agenda for the new year and the beef issue are factors that need to be watched as they could alter the prospects for ratification in 2011. In South Korea, opposition parties criticized the revised agreement as an “unfair” and “humiliating” deal. Since the final agreement was reached during a crisis following North Korea’s artillery attack on South Korea’s Yeonpyeong Island (discussed below), some opposition parties argued that Seoul made too many concessions in return for security and vowed to block its passage if they find the balance of interests were compromised. Major opposition politicians who will oppose the agreement admit privately, however, that passage of the agreement in Korea was likely. In the end, this agreement – the largest bilateral FTA ever reached by the US – is too important to fail.

North-South Korea on the edge of war

The North Korean artillery barrage on a South Korean island raised a real possibility of war on the Korean Peninsula this quarter. At 2:34 pm local time on Nov. 23, North Korea fired over 170 artillery rounds on and around Yeonpyeong Island in the Yellow Sea, claiming that South Korea had provoked it with a military exercise on the island. The South Korean military returned 80 artillery shells and deployed fighter jets to the area in response, reportedly causing substantial damage in the North. The North Korean attack killed two ROK marines and two civilians and injured 19 others. It destroyed many houses and severely damaged infrastructure on the island, prompting the immediate evacuation of its 1,300 residents.

The shelling of Yeonpyeong Island had serious ramifications in South Korea since it was the second military provocation this year – the sinking of the Cheonan in March occurred in the same general area of the Yellow Sea. More importantly, it was the first time since the end of the Korean War that the North launched a direct attack onto South Korean territory, causing civilian casualties. The gravity of the situation drove the ROK National Assembly to swiftly pass a resolution condemning North Korea for its provocation and demand that the Lee administration counter further provocations in a firm manner. The attack caused a rightward swing in South Korean public opinion. What else made this provocation different from others was not just its outright brashness, but also that the artillery barrages were shown live on television throughout the country. The so-called “CNN effect” had a major impact on Korean thinking. According to a survey jointly conducted by the East Asia Institute (EAI) and Korea Research in the wake of the artillery attack, 68.6 percent of respondents agreed that a limited military response toward North Korea was appropriate. When the Cheonan incident took place, by contrast, only 28.2 percent supported the limited military option. The Asan Institute for Policy Studies (AIPS) had a similar survey result; after the shelling of Yeonpyeong, 80.3 percent of respondents said the South Korean government should have taken a stronger military action in response to the North’s attack on the island. In the event of future provocations, 40.5 percent favored a limited military response and 25 percent favored strong retaliation with an all-out war mobilization.

Presidents Lee and Obama quickly decided to hold US-ROK joint military exercises in the Yellow Sea, with the participation of the aircraft carrier USS George Washington. Obama strongly condemned North Korea for its attack and reiterated the US commitment to the security and defense of its ally. He also called on China to step up and pressure North Korea to refrain from further provocations. In a public address, Lee expressed his frustration with North Korea, saying “prolonged endurance and tolerance will spawn nothing but more serious provocations.” He also warned that any future provocations by the North would be met with “actions” rather than “words.” A week after the US-ROK joint exercises ended, the US, South Korea, and Japan held a ministerial-level trilateral meeting in Washington to discuss the crisis in the peninsula. The meeting was an opportunity for the three countries to strengthen their policy coordination and consultation on North Korea’s provocations and its nuclear program. According to the Chosun Ilbo, Secretary of State Hillary Clinton and Japanese Foreign Minister Maehara Seiji agreed to support South Korea’s military response to any further provocations by the North. This was effectively an unprecedented statement of collective self-defense. Though this made Seoul a bit uncomfortable given historical sensitivities regarding Japan, it was seen as the appropriate response given the gravity of the situation. Preconditions that North Korea must meet before a resumption of the Six-Party Talks were also set. According to State Department spokesman Philip Crowley, the three agreed that Pyongyang must 1) cease provocations, 2) reduce tensions in the region, 3) improve its relationship with South Korea, 4) take affirmative steps to denuclearize in line with the 2005 joint statement, and 5) abide by its international obligations under UN Security Council resolutions.

Tensions on the peninsula peaked when South Korea conducted its planned live-fire drills near Yeonpyeong Island on Dec. 20 amid the North’s threats of retaliation. China and Russia expressed extreme concern, called for restraint from both Koreas, and strongly urged South Korea to halt its exercises. Backed by the US and Japan, South Korea flatly rejected their call, saying that conducting the drills in its own territory is a matter of national sovereignty. The country showed its determination by completing military preparations and enhancing combat readiness in the event of a possible North Korean retaliation. As the two Koreas inched closer to war, the UN Security Council held an emergency meeting upon Russia’s request. Despite an eight-hour meeting, the UNSC failed to pass a resolution due to internal disagreements among countries. Both China and Russia strongly opposed any statement that blamed North Korea for the shelling incident and called upon South Korea not to aggravate the situation. The US defended South Korea’s exercise, claiming that its ally has the right to conduct military exercises in its self-defense.

North Korea held back from launching an attack in response to the ROK exercise. Newspapers reported that Beijing was so concerned that the situation would escalate uncontrollably that State Councilor Dai Bingguo contacted Pyongyang prior to the exercise urging Pyongyang not to respond to the ROK drill. True or not, the visit by National Security Council Senior Director Jeff Bader and Deputy Secretary of State Jim Steinberg to Beijing on Dec. 14-15 made clear that 1) the ROK would hold the artillery exercise, 2) the US would not stop the drill, and 3) China must do what it can to restrain the North.  Tensions still hovered over the peninsula as the quarter ended. But, what was notable about the South Korean drills was that the government demonstrated its determination to break the vicious cycle of North Korea’s hostility through a strong, proportional military action, even at the risk of military conflict. Unlike before, the US and Japan supported the South Korean military action even with the possibility that it could have drawn them into the conflict. Further, the shelling of Yeonpyeong revealed that there is a growing consensus in South Korea that favors a military response to Pyongyang’s bellicosity over a diplomatic response or dialogue. All of these are a significant departure from the past. Whether the Lee administration’s shift in thinking, tougher stance, and enhanced military posture toward Pyongyang can effectively deter future provocations is yet to be seen. Meanwhile, North Korea’s future provocations could occur in an ambiguous way, which would give it the opportunity to deny responsibility.

Six-Party Talks in a tug-of-war

Small movements between the two Koreas after the Cheonan incident created momentum among the participating countries to discuss the resumption of the Six-Party Talks. In October, negotiators were engaged in another round of shuttle diplomacy to discuss resuming talks. Pyongyang sent a positive signal by announcing its commitment to the September 2005 agreement. Such efforts abruptly ended in mid-November when North Korea disclosed its uranium enrichment facility to a group of US nuclear experts. During their visit to North Korea’s Yongbyon nuclear complex, nuclear scientist Siegfried Hecker and his Stanford University colleagues John Lewis and Robert Carlin were shown an experimental light-water reactor (LWR) in the early stages of construction and a new facility housing as many as 2,000 centrifuges that could be used to enrich uranium. According to Hecker, North Korea claimed that the new reactor would be operational by 2012 and its intention was only to promote civilian nuclear power and not to enrich weapons grade uranium.

If Pyongyang’s strategy behind its revelation was to coerce countries to come to the negotiation table so it could extort food and economic aid, then it was partly successful in delivering its message: Stephen Bosworth was immediately dispatched to South Korea, Japan, and China to discuss the North’s nuclear program and the resumption of talks. But the North’s disclosure did not force the issue: Bosworth called it “provocative” but not a “crisis” after meeting his counterparts in Seoul. The next day North Korea launched its artillery bombardment on Yeonpyeong Island, causing a real crisis.

Meanwhile, countries continued to play tug-of-war over resumption of the Six-Party Talks. Immediately prior to the US and South Korea joint exercises in the Yellow Sea, State Councilor Dai Bingguo, who is in charge of foreign affairs, made an unscheduled visit to Seoul to propose an emergency meeting of the Six-Party Talks. President Lee dismissed the Chinese proposal, saying that it wasn’t the right time for talks and it was more urgent to deal with North Korea’s hostility. Washington and Tokyo echoed Lee’s rejection. Unusual for Russia, Foreign Minister Sergey Lavrov quickly condemned North Korea for its shelling of Yeonpyeong, and Prime Minister Vladimir Putin urged the country to “unconditionally” comply with UN Security Council resolutions 1718 and 1874. Sensing a different tone in Russia’s statement, both Seoul and Pyongyang swiftly dispatched envoys to Moscow in mid-December to meet their Russian counterparts. In the end, Russia clung to its conventional stance and concurred with China on the necessity to defuse heightened tensions through dialogue.

Although both the US and South Korea are wary of any future Pyongyang calls for dialogue, the only real path back to negotiations requires first an improvement in North-South relations. What form this should take is unclear, but given recent events, inter-Korean military talks and possible economic engagement discussions are the most likely places to start. Successful conclusion of these talks would give Washington a more positive indication of Pyongyang’s willingness to negotiate in earnest. Admittedly, at the end of 2010, those are a long way away. Whether Presidents Obama and Hu Jintao can come to any substantial agreement on North Korea issues during their summit in January next year remains unclear, but their meeting will help shape developments on the Korea Peninsula.