The quarter began with high hopes, following the year’s second Six-Party Talks “breakthrough,” but it was all down hill after that. On Oct. 3, Beijing announced a “second phase” implementation plan that laid out a series of specific Korean Peninsula denuclearization actions to be accomplished by Dec. 31. Unfortunately, the new year tolled with the most critical of these promised actions – a mutually acceptable “complete and correct declaration” of all North Korean nuclear programs, facilities, and activities – nowhere to be found. The much-anticipated ASEAN Charter was also signed this quarter but hopes that Myanmar would somehow be penalized for its brutal suppression of peaceful protests earlier in the fall were dashed as the other members took an ostrich-like approach to the problem. The third East Asia Summit took place as scheduled, with outside observers still not fully clear about the group’s objectives or its place in the greater multilateral mix. The largest multilateral gathering of the quarter took place in Bali, where those worried about global warming expelled a lot of hot air in producing a potentially useful but currently not very specific “Bali Roadmap” on climate change. The democratic process remained alive and well with new governments being elected in Australia, South Korea, and Thailand, even as China was ruling that Hong Kong would not be ready for a more representative government until at least 2017. On the economic front, 2007 proved to be a good year for Asia, with growth consistent with pre-year projections; most forecasters see only a modest slowdown in 2008, despite lingering concerns about over the fallout from the U.S. subprime mortgage crisis.

Prime Minister Fukuda Yasuo outlined his foreign policy agenda in an address to the Diet, highlighting – as did his predecessors Abe Shinzo and Koizumi Junichiro – the U.S.-Japan alliance and international cooperation as the foundations of Japanese diplomacy.  But legislation authorizing Japan’s naval refueling mission in the Indian Ocean became a political football in a divided legislature and expired on Nov. 1, forcing Fukuda to draft a new bill and extend the Diet session twice in an attempt to continue Japan’s support for the war on terror.  Fukuda noted the importance of the bill during a November summit with President Bush in Washington that also covered other issues including the Six-Party Talks and concerns in Japan about a perceived shift in the U.S. position on Japanese citizens abducted by North Korea.  Other developments such as a new agreement on host nation support for U.S. forces in Japan and a successful sea-based missile defense test demonstrated forward trajectory for alliance cooperation.  Yet the quarter ended with other issues unresolved, namely Japan’s suspension of Indian Ocean refueling operations and Pyongyang’s failure to come clean on its nuclear programs.

China’s refusal to allow the USS Kitty Hawk to make a scheduled visit in Hong Kong for Thanksgiving refocused attention on bilateral differences over Taiwan and Tibet.  It also raised questions about civilian-military coordination in China and highlighted the mistrust between U.S. and Chinese militaries.  A series of agreements were reached to promote better relations between the U.S. and Chinese militaries during a visit to China by Defense Secretary Robert Gates and a subsequent round of the Defense Consultative Talks.  Economic and trade issues were at the top of the bilateral agenda as the Joint Commission on Commerce and Trade and Strategic Economic Dialogue convened and produced some successes, although not on the niggling issue of China’s currency valuation.

North Korea followed through on its Oct. 3 commitment to disable its nuclear facilities this quarter, but resisted giving an “complete and correct” declaration of its nuclear programs.  While the disabling actions – which would prevent North Korea from producing nuclear material for at least a year – encouraged U.S. officials, Pyongyang’s unwillingness to declare its uranium enrichment program, in particular, created a potentially major obstacle in the Six-Party Talks. At the end of the quarter, the U.S. faced a diplomatic dilemma: how to incentivize Pyongyang to continue the disabling process, while pressuring North Korea to come clean on its past nuclear activities.  Pyongyang insisted it had engaged in “sufficient consultation” with the U.S. on the declaration and threatened to slow down the disabling process until it received more compensation.

The election of South Korea’s conservative party candidate, Lee Myung-bak, on Dec. 19 signified that Seoul and Washington will soon likely have a more coordinated policy approach toward North Korea.  Lee stressed that he would adopt a “pragmatic” approach and support large-scale South Korean economic assistance to Pyongyang – but only if North Korea first abandons its nuclear program. U.S. and South Korean officials sparred this quarter over Korea’s decision to suspend U.S. beef shipments because of the threat of mad cow disease.  They proved unable to resolve this issue, although President Roh Moo-hyun and President-elect Lee pledged to work together to ratify the U.S.-Korea Free Trade Agreement (FTA) at the upcoming session of the National Assembly in February.

Now that the world is finally coming around to understanding the man Vladimir Putin and what it is he represents, he appears to be stepping down – sort of.  In December, Putin named his preferred successor, longtime aide and fellow Petersburger Dmitri Medvedev.  While George Bush proclaims to have understood Putin after their first meeting in 2001, most Russia observers in the U.S. have been arguing over Putin and what his government represents for the better part of eight years.  Does he represent a true change for Russia (a democratic change for the better) or is he steering that nation back to more historically familiar, repressive patterns?  Now that the Kremlin has come forward with its own explanation, and has been bandying about the term “sovereign democracy,” the question of what Putin and the Kremlin represent is no longer hard to decipher.  Russia has chosen a path that is by no means unique: a mercantilist, authoritarian form of democratic government that is very familiar to Asia watchers.  What is becoming apparent is that, if anything, the U.S. form of democracy is the unique model, difficult to copy and long in development.  Russia and other infant democracies may arrive one day, but “sovereign democracy” is here for the time being in Russia.

Meanwhile, the designation of Medvedev as the preferred successor to the presidency could be seen as a plus for the U.S.  Many leading Western analysts view him as an economic liberal; most importantly, he has no known background in the intelligence or the security services.  But the fact that he is a relative political lightweight leaves the door open for the return of Putin, or his retention of power as the kingmaker behind closed doors, or even as prime minister.

While the ASEAN 10 celebrated the association’s 40th anniversary by initialing its first Charter giving the group a legal personality at its November Singapore summit, Burma’s vicious crackdown on thousands of democracy and human rights demonstrators dampened the exultations.  The Bush administration placed new sanctions on the Burmese junta, including the Treasury Department’s freezing of companies’ assets doing business in Burma and possibly even banks that handle their transactions.  Moreover, Washington warned that an ASEAN-U.S. Trade Agreement now depends on Burma’s genuine progress toward democracy – an unlikely prospect as long as the junta continues to rule.  For the Philippines, Washington has promised more economic and military aid focused primarily on the restive south but partially conditioned on a better human rights performance.  Human rights concerns also dominated U.S. relations with Malaysia and Thailand with respect to Kuala Lumpur’s crackdown on ethnic Indian demonstrations and Thailand’s harsh treatment of Muslim dissidents in the southern provinces.

The highlight of this quarter was Prime Minister Wen Jiabao’s active agenda in regional summits coinciding with the ASEAN Plus China, ASEAN Plus Three (with Japan and South Korea) and East Asia Summit meetings in Singapore in November. Chinese officials adhered to the line of the 17^th Chinese Communist Party (CCP) Congress emphasizing harmonious relations with Southeast Asian and other countries, but ran across some difficulties involving Myanmar, Vietnam, and climate change.

At the 17^th Party Congress in October, Hu Jintao authoritatively reiterated Beijing’s desire for a peace agreement on the basis of the one China principle.  Behind this positive public posture, Beijing remains deeply concerned about the referendum on joining the UN under the name “Taiwan” that Chen Shui-bian is relentlessly promoting. Yet Beijing has kept its rhetoric under control.  It has pressed the U.S. to do more to stop the referendum and has worked with some success to mobilize international criticism of it.   Washington has continued to make known to the public in Taiwan its reasons for opposing this referendum and, to underline the message, Washington has put Taiwan’s purchase of more F-16 fighter jets on hold.   That Chen is pushing ahead with the referendum despite international opposition only confirms that his purpose is primarily election mobilization.

The last quarter of 2007 was significant for inter-Korean relations in two distinct, perhaps even opposite, ways. It began with what is only the second North-South summit ever held, when ROK President Roh Moo-hyun met DPRK leader Kim Jong-il in Pyongyang. No mere symbolic one-off, as many feared, the summit produced a raft of follow-up meetings: between the two sides’ premiers and defense ministers, plus numerous old and new committees and sub-committees dealing with a wide range of specific fields.

Better yet, while not without a political agenda, this many-sided cooperation mostly looked pragmatic and business-like. The result was the most intense and densest interaction so far seen between the two Korean states. Barely a day passed without them meeting somewhere, to deal with one topic or another. In a 62-year history of separation, punctuated in recent decades by several false starts, it appeared that an era of regular, sustained and largely practical intercourse between Seoul and Pyongyang had begun, at long last and irreversibly.

In our judgment that remains the case. Yet as of early 2008 two shadows, potentially dark clouds, threaten to dim this institutionalization of what Kim Dae-jung, its “onlie begetter” a decade ago, famously christened the South’s “Sunshine” policy of engaging the North.

On Dec. 19 South Koreans went to the polls to choose their president for the next five years, through February 2013. The continuity candidate was Chung Dong-young of the pro-government center-left United New Democratic Party (UNDP), who as unification minister met Kim Jong-il in 2005 and is closely identified with “Sunshine.” The Aesopian metaphor has stuck, even though Roh blandly rebranded this as the “policy for peace and prosperity.”

But the voters rejected Chung. By the widest margin ever, they returned the conservative formerly ruling Grand National Party (GNP) to power, after a decade in the wilderness. More specifically they endorsed Lee Myung-bak, a former Hyundai CEO and ex-mayor of Seoul, nicknamed “bulldozer” for his can-do image. Lee has vowed to review all the Roh government’s recent deals with the North, to demand more reciprocity from Kim Jong-il, and to link aid and other progress to Pyongyang’s nuclear compliance – or lack of it – in the ongoing Six-Party Talks (SPT), involving the two Koreas, the U.S., China, Japan, and Russia.

In fact, other things being equal, the pragmatic Lee – no old cold warrior, more center than right – might find little to quarrel with in his predecessor’s raft of recent agreements with the North, most of which look businesslike and mutually beneficial. But linkage to the SPT is more problematic at this point. The nuclear talks, which made unprecedented progress in 2007 with two landmark agreements and the closure of the DPRK’s Yongbyon reactor site, have hit a bump. Pyongyang’s failure to fulfill its pledge to make a full declaration of all its nuclear activities by the year-end presages problems in 2008. If Kim Jong-il digs his heels in, this will create a dilemma for Lee, who despite being a new broom may not want to lose the momentum recently gained in North-South ties.

The ROK election was fought mainly on domestic issues; it was not primarily a referendum on sunshine. Polls suggest that most South Koreans support engagement with the North, as indeed does Lee Myung-bak. The tricky question now is on what terms, and how concretely to take this forward should the DPRK remain defiant on the nuclear front.

For that matter, the North too must decide what to make of Lee. Having long excoriated the GNP as traitors and pro-U.S. flunkeys, Northern media have been oddly silent since Lee was elected. Instead they reserved such venom for Lee Hoi-chang, the GNP’s losing candidate in 1997 and 2002 who ran this time as an independent conservative, accusing his namesake of being soft on North Korea and generally (much as Margaret Thatcher and her acolytes used to damn more moderate Tories as “wets”). Lee HC’s 15 percent of the vote, while way behind Lee MB’s 49 percent, is a salutary reminder that the old Cold War hard right, which long ruled in Seoul under military dictatorships, is by no means extinct. Or put another way, combining the two Lees means that nearly two-thirds (64 percent) of electors voted right of center, while Chung Dong-young garnered just 26 percent for the center-left.

Hence 2008 could go either way. The foundations of unprecedented practical cooperation between the two Koreas may be built on – or, as so often before, be left unfinished or marking time owing to a change in the peninsula’s volatile political weather.

The Oct. 3 Six-Party Talks agreement on next steps in North Korea’s denuclearization and the Oct. 4 inter-Korean summit declaration shaped developments in China-Korean relations in the last quarter of 2007, as China reaffirmed its peacemaking role on the Korean Peninsula.  Chinese Communist Party official Liu Yunshan visited Pyongyang in late October with a message from Hu Jintao, resuming party-to-party high-level contacts with Pyongyang after a year’s break.  Similarly, Six-Party Talks lead negotiator Wu Dawei visited Pyongyang in mid-December to encourage North Korean counterparts to follow through on obligations to disable and declare nuclear facilities by the end of the year in accordance with the Feb. 13 and Oct. 3 agreements.  South Korean telecommunications companies worked hard to gain an advantage over global competitors in the Chinese market, while Korean automobile and steel manufacturers faced new challenges as industrial espionage involving proprietary technology drew an even higher profile in both sectors.  China’s search for financing has not bypassed the Korean equity market, as Korea’s China-focused equity funds gained while the Korean Stock Exchange attempts to attract Chinese firms to list directly on the Korean exchange.