The quarter was highlighted by the beginning and, after a five-week recess, successful conclusion of the long-delayed fourth round of Six-Party Talks.  While the Joint Statement issued Sept. 19 was far from a breakthrough, leaving many questions unanswered and most contentious issues unsettled, it did provide a framework for future cooperation (and, one hopes, eventual progress) by listing mutually agreed upon objectives, to include “the verifiable denuclearization of the Korean Peninsula in a peaceful manner.”

In Southeast Asia, the Indonesia government and the Free Aceh Movement (GAM) also decided to give peace a chance in the long-troubled and more recently tsunami-devastated Aceh province. Also in Southeast Asia, the annual round of ASEAN ministerial meetings took place in late July with the focus largely centered on which ministers did not attend the ASEAN Regional Forum (ARF) security dialogue and who would assume the ASEAN chair in mid-2006.  Meanwhile, the Shanghai Cooperation Organization (SCO) got Washington’s attention when it called for the United States to set a date for the withdrawal of its forces from Central Asia’s “temporary infrastructure,” raising questions about Beijing’s (and Moscow’s) support for the war on terrorism and desire for cooperative, constructive relations with Washington.

Finally, World Health Organization officials continued to warn of a potential pandemic if a new variant of the avian flu virus, which has now killed at least 65 people in Vietnam, Thailand, Cambodia, and most recently Indonesia, begins spreading from human to human.

In a show of political derring-do, Japanese Prime Minister Koizumi Junichiro called a snap election in August after facing resistance to economic reform from his own party. The prime minister read the public mood well: the ballot produced a landslide victory that permitted him to steamroll the opposition both within the Diet and within his party. In theory, Koizumi’s new strength should help the alliance; his new mandate should cover security policies, too. In reality, voters were thinking less expansively, however. And in practical terms, the political landscape has been so transformed that adjusting to it will take time. Important decisions will not be made and patience will be at a premium.

Delays hit two important U.S. concerns: redeploying U.S. forces in Japan and lifting the ban on U.S. beef imports. Failure to resolve these issues is ratcheting up pressure in Washington and may even prompt a public falling out. Congressional hearings that evoke the Japan bashing of old may be a harbinger of things to come in the next quarter.

The quarter opened with a 20-hour stopover in Beijing by Secretary of State Condoleezza Rice.  In early August, her deputy Robert Zoellick visited China to launch a senior-level dialogue on strategic issues. The devastation wrought by Hurricane Katrina resulted in the postponement of Chinese President Hu Jintao’s long-planned visit to the United States. Instead, Presidents Hu and Bush met on the sidelines of the UN General Assembly (UNGA) meeting. China played an instrumental and assertive role in forging consensus on a joint statement at the fourth round of the Six-Party Talks. U.S.-China military exchanges picked up this quarter with an exchange of visits by Gen. Liu Zhenwu, the commander of China’s Guangzhou military region, and Adm. Fallon, the commander of U.S. military forces in the Pacific. The economic and trade picture was mixed. Some progress was made on strengthening the protection of intellectual property rights in China. Three rounds of textile negotiations failed to produce an agreement. In July, China abandoned the decade-old peg of the yuan against the dollar, and revalued its currency 2.1 percent.

For the first time in more than two years, diplomats at the Six-Party Talks made significant progress this quarter on the nuclear issue with North Korea. In a joint statement of principles, Pyongyang committed itself to “abandoning all nuclear weapons and existing nuclear programs and returning at an early date to the treaty on the nonproliferation of nuclear weapons and to International Atomic Energy Agency (IAEA) safeguards.”

In return, North Korea received security assurances, a U.S. and Japanese promise to take steps toward normalization of relations, a South Korean offer of 2 million kilowatts of electricity, and a commitment to implement the agreement sequentially on a reciprocal basis. In the Chinese-brokered joint statement, the United States and North Korea further agreed to discuss Pyongyang’s right to develop peaceful nuclear energy and its demand for light-water reactors at a future meeting.

Importantly, the agreement also gave impetus to negotiating a permanent peace regime for the Korean Peninsula and establishing a system for multilateral security cooperation in Northeast Asia.  The parties decided to conduct another round of the Six-Party Talks in November 2005 to discuss detailed arrangements for verifying and implementing the joint statement.

Their successful meeting came after more than a year-long impasse in the talks. North Korea agreed to resume the negotiations July 9, following a meeting in Beijing where the U.S. envoy to the Six-Party Talks, Ambassador Christopher Hill, conveyed several desired assurances to Pyongyang.

Despite political pressure that arose after the London terrorist bombings in July to withdraw South Korean forces from Iraq, South Korea appeared to lay the groundwork this quarter to extend its troop deployment into 2006.  Without an extension, the National Assembly’s mandate for the forces in Iraq will expire at the end of November.

U.S. Trade Representative Rob Portman announced in early September that the U.S. would decide by the end of the year whether to launch a negotiation for a U.S.-South Korea Free Trade Agreement.  He said Washington’s decision would hinge on Seoul’s willingness to resolve several outstanding trade issues, including South Korea’s “screen quota” on showings of Hollywood movies and its import ban on U.S. beef.  At the end of the quarter, South Korea was reportedly reassessing its refusal to meet U.S. demands on those issues.

The strategic partnership between the United States and Russia still exists in the war on terror, and to a lesser extent in the battle to prevent the proliferation of nuclear material and weapons. But in Central Asia, the relationship between Moscow and Washington has clearly turned a corner, and turned into a competition. And although this author hates to utilize clichés (see the reference to the “Great Game” in the title), the situation in Central Asia is clearly turning acrimonious. The transition from strategic partner to strategic competitor was made clear at the Shanghai Cooperation Organization (SCO) summit in July. At the summit meeting, SCO members China, Russia, and the four nations of Central Asia called on the U.S. to announce a date for the withdrawal of U.S. forces from bases and facilities in Kyrgyzstan and Uzbekistan. Moscow and Washington also continue to agree to disagree about Iran’s nuclear ambitions. In Northeast Asia, relations appear to be in the status quo mode, although Moscow appears to be continuing its slow creep toward China. Presidents George Bush and Vladimir Putin met twice during the quarter, and appear to have maintained their friendship, despite the political differences dividing their two countries.

Secretary of State Condoleezza Rice’s decision to bypass the annual ASEAN and ARF meetings in her first year as secretary is seen as a snub by Southeast Asian leaders and interpreted to be a sign of the low level of the region’s importance to Washington. Nevertheless, U.S. security cooperation seems to be increasing with the littoral states in the Strait of Malacca, through bilateral exercises with ASEAN states’ armed forces, military sales to Thailand, a new security agreement with Singapore, and continued anti-insurgency training for Philippine forces in Mindanao. Moreover, the U.S.-led multinational Proliferation Security Initiative (PSI) held its first South China Sea exercise on the interdiction of weapons of mass destruction (WMD). Finally, Vietnam was added to the list of Southeast Asian states participating in the U.S. International Military and Educational Training (IMET) program.

China’s relations with its Southeast Asian neighbors moved along at a steady pace during the third quarter of the year. In the political sphere, Aug. 20 marked the first meeting of the China-ASEAN Eminent Persons Group in Qingdao. Initiated by Premier Wen Jiabao last year, and eagerly anticipated by ASEAN, the meeting put the very important ceremonial seal of approval on the growing relations between China and ASEAN. The Chinese side was led by no less a personage than former Foreign Minister Qian Qichen. The group agreed to hold a second meeting in Kuala Lumpur next year.

In the political/economic sphere, what could have been a major economic issue with significant negative impact on Chinese relations with ASEAN – regional concerns about Beijing’s decision to change its policy of pegging the value of the yuan to the U.S. dollar in favor of allowing the yuan to float – failed to materialize in any politically meaningful way.

The absence of neuralgia within Southeast Asian financial and trade circles probably had three sources. First, the Chinese invested significant time and energy in preparing both governmental and private economic centers from Thailand to Singapore to Indonesia for their action; second, regional financial circles were clearly convinced that some action was essential; and third, correctly or not, the action, which allows only the most limited room for fluctuation in value, was broadly perceived as a reasonable first step toward dealing with an issue that is likely to be present for a considerable period of time. In this context, and despite significant concerns about the future, the Chinese decision was seen as prudent, responsible, and reasonable.

Indeed, in coming to terms with the inevitable, business, financial, and government leaders in Bangkok, Jakarta, Kuala Lumpur, Manila, and Singapore, all declared in so many words that a floating yuan is a good thing that is likely to enhance the value of their own respective currencies. It is worth noting that Kuala Lumpur implemented a similar policy with respect to the ringgit.

Although in one sense Beijing merely took a sideways step and succeeded in deferring the time at which the issue of the value of the yuan relative to the dollar and regional currencies will have to be truly resolved, the positive regional reaction augurs well for future economic relations between Beijing and Southeast Asia. Regional economic leaders probably feel more confident about Beijing’s awareness of the impact of any change in the value of the yuan.

The summer saw Beijing extending friendly gestures toward Taiwan – a welcome change. Beijing has worked to build on the visits by opposition party leaders in the spring, while seeking to marginalize President Chen Shui-bian’s administration. Initiatives that China could implement on its own have gone ahead, while those requiring cooperation from the Taiwan government have languished. China conducted its first joint military exercise with Russia in August, and structured the exercise so that people in Taiwan would see it as threatening. Nevertheless, partisan wrangling in Taipei continued to delay a decision on adoption of the supplemental arms budget. Cross-Strait trade continued to grow, but at a relatively slow pace. Beijing’s strategy to marginalize Chen will limit progress on cross-Strait functional issues and not necessarily rebound to Beijing’s long-term benefit.

As the humid Korean summer yields to the crisp beauty of autumn, inter-Korean ties have never been better – or at least bigger. As if to compensate for the lost year from mid-2004 to mid-2005, when Pyongyang for no good reason eschewed official contacts with Seoul, the past quarter has indeed seen, as we predicted last time, a packed calendar of meetings: hardly a day went by without one. Moreover, this intense intercourse looks set to continue.

Does quantity mean quality? As ever, some of these encounters were more formalistic than substantive. Nor has North Korea yet delivered all that it has promised – much less all that South Korea would like. Nonetheless, economic progress in particular seems to be moving at last toward sustained cooperation. Security issues are more problematic: while Six-Party Talks on the nuclear issue finally agreed on principles in September, both the interpretation and realization of this accord promise to be thorny. Seoul’s mediating role, while welcome at one level, also raised questions about how far inter-Korean progress was being made at the expense of the ROK’s strained alliance with the U.S. or its rocky relations with Japan.

After over a year of anticipation, the fourth round of Six-Party Talks finally reconvened and even made progress, concluding with a joint statement of principles that will serve as guidelines for a more specific agreement on how to resolve the North Korean nuclear crisis. China was the linchpin and host of the diplomatic effort to achieve an agreement, the outcome of which was largely influenced by a combination of Chinese efforts to woo the North Koreans back to the talks and Beijing’s increasingly steadfast alignment with South Korea as factors that ultimately constrained and induced concessions from both the DPRK and the United States. PRC State Councilor Tang Jiaxuan’s visits to Pyongyang and Washington in July for meetings with Chairman Kim Jong-il and President George W. Bush, respectively, were emblematic of China’s diplomatic efforts to push forward the six-party process. Although the Bush administration’s willingness to initiate bilateral negotiations with the DPRK inside the six-party framework was a prerequisite for progress and South Korea’s enhanced efforts through a revived inter-Korean dialogue also facilitated the process, Chinese diplomacy with North and South Korea was possibly the critical factor in shaping – and limiting – the parameters of a deal.

The impact of China’s yuan revaluation reverberated in South Korea this quarter with mixed effect.  On the one hand, the South Korean won is one of the currencies against which the Chinese yuan will “float,” a tangible recognition of the rising importance of the Sino-South Korean trade relationship; on the other hand, South Korean companies nervously watched the effect of the revaluation on exchange rate margins on their operations in China and anticipated whether and to what extent those margins may be adjusted. A spate of tainted food cases involving imports to South Korea from China was a public health concern for Korean families that slowed but has not derailed a more active interest within the private sector for a China-South Korea free trade agreement (FTA) to complement China’s regional and ASEAN-focused FTA efforts.

During this quarter, China observed a number of anniversaries in Sino-Japanese relations related to the Japanese military action in Asia. China’s leadership took care that the anniversaries, aimed at strengthening Chinese patriotism and the legitimacy of the Chinese Communist Party (CCP), would not replicate the anti-Japanese sentiment loosed in April. And they were successful.

At the same time in Japan, domestic politics were center stage.  Prime Minister Koizumi Junichiro was absorbed in the passage of his postal reform legislation.  Failure to secure passage led Koizumi to dissolve the Diet in early August and to go to the polls Sept. 11.  The prime minister focused his campaign on the reform issue and avoided discussion of Aug. 15 and his visits to the Yasukuni Shrine. Meanwhile, Japanese diplomacy is absorbed by the Six-Party Talks.

One issue did disturb the political and diplomatic calm – the East China Sea territorial dispute. In July, the Japanese government granted exploration rights to Teikoku Oil Company in the area east of the mid-line boundary, which China has refused to acknowledge. The government later committed to protect Teikoku exploration activities in the event of Chinese challenges.  In mid-September, reports reached Tokyo that China had initiated natural gas production in the Tianwaitian field – on the western Chinese side of the mid-line. Diplomats are scheduled to meet in Tokyo at the end of September to discuss East China Sea issues.

Japan-Korea relations in the past quarter showed no major surprises, and no major changes. Although there was real progress within the larger context of the Six-Party Talks, the agreement in principle by Japan and North Korea to “normalize their relations in accordance with the Pyongyang Declaration, on the basis of the settlement of the unfortunate past and the outstanding issues of concern,” was both a step forward and yet also the mere reiteration of agreements already made between the two sides. The real issues – and the real work – will begin in the future, as the two sides begin discussing details of just exactly how to settle the abductee issue and move toward normalized ties. It is significant, however, that Japan was willing to forego greater pressure on North Korea on the abductee issue in favor of a broader agreement with the six parties.

With the focus on the two meetings of the six parties in Beijing, much of the heat between South Korea and Japan over disputed islands and textbooks faded to the background. Although the issues are still quite prevalent, the surge of emotion over the issues subsided, although most likely this is a temporary respite. Although Japanese Prime Minister Koizumi Junichiro made both a deep bow and public statement of apology in general for Japan’s role in World War II, this apparently did little to assuage South Korean resentment over Japan’s policies on specific issues. However, despite the friction over textbooks and history, Japan and South Korean cooperation continued to increase on matters such as judicial cooperation on international crimes, and the two militaries found ways to cooperate on issues such as high-level officer exchanges and Coast Guard operations. Economic interactions between South Korea and Japan continued to deepen over the quarter. Although much of this was “business as usual,” the most notable move was an alliance by Samsung and Sony to cooperate on various technical matters, marking a further integration of the economies of these two high-tech Asian nations. Finally, in cultural issues, Japanese continued to see Koreans as more friendly than Koreans saw Japanese.

In three “strikes” during the third quarter, Moscow and Beijing pushed their bilateral relations, qualitatively and quantitatively, toward a more proactive and outward-looking posture. It began with the signing of the Sino-Russian Joint Declaration on the International Order in the 21st Century at the Moscow summit July 1. A few days later at the annual Shanghai Cooperative Organization (SCO) summit July 5, a significantly enlarged regional security forum – adding India, Iran, and Pakistan as “observers” – called on the U.S. and its coalition members in Afghanistan to set a deadline for U.S. withdrawal from military bases in the territories of the SCO member states (Kyrgyzstan and Uzbekistan).  In late August, the first-ever Sino-Russian joint exercise, code-named Peace Mission 2005, further elevated the strategic partnership between the two continental powers. In the wake of the exercise, Russian military sales to China, too, apparently entered a new phase with new categories of weaponry being offered as well as technological transfers.