Several senior administration officials provided insights into the Bush administration’s East Asia and global strategic thinking this quarter. National Security Advisor Stephen Hadley explained “three basic insights” that guide East Asia policy, reinforcing the centrality of U.S. alliances (a common theme in Asia policy pronouncements in the past but one that had been strangely absent in major Asia addresses by President George W. Bush and Secretary of State Condoleezza Rice); Assistant Secretary of State Christopher Hill provided the most comprehensive statement to date regarding administration views of East Asia community building, pointing out Washington’s concern about the “Pan-Asianism vs. Pan-Pacificism” debate; and Defense Secretary Donald Rumsfeld made it clear that Washington prefers global, more inclusive, task-oriented multilateralism (“the mission defines the coalition”) over Cold War institutions that will become increasingly irrelevant if and when they fail to adjust to new strategic realities.

One such “coalition of the willing,” the Proliferation Security Initiative (PSI), celebrated its third anniversary, with Under Secretary of State Robert Joseph calling for more nations to come on board and for those already participating to “think innovatively, enforce aggressively, and engage regularly.” A major PSI air interdiction exercise off Australia drew participants from six countries, with observers from 26 more. Another “PSI-like” exercise would have represented a historic first until China and South Korea became last-minute no-shows. The Chinese did, however, send observers to a major U.S. military exercise held near Guam. Meanwhile, the Six-Party Talks remained a coalition of the unwilling as North Korea continued to boycott the talks amid preparations for a missile test which, on the Fourth of July, may have sounded a death knell for the talks . . . or maybe not!

In Southeast Asia, the nations of ASEAN took a small step closer to multilateral defense cooperation with the convening of the inaugural ASEAN Defense Ministers Meeting in early May. Many reconvened in Singapore during the Shangri-La Dialogue, which involved defense officials from 22 Asia-Pacific nations (including Secretary Rumsfeld). Malaysia, Singapore, and Indonesia took major steps toward greater actual defense cooperation in patrolling the Malacca Strait, while Malaysia Defense Minister Najib proposed the establishment of a regional relief center to coordinate regional responses to humanitarian disasters. When it came to responding to a neighbor’s call for help, however, ASEAN was conspicuously quiet, with only Malaysia sending assistance to help restore order in Timor-Leste, where the democratic process is struggling to take hold.  Meanwhile, the democratic process is nowhere to be found in Myanmar (Burma), where the ruling junta disappointed its ASEAN colleagues by once again extending Aung San Suu Kyi’s house arrest for another year.

The second quarter of 2006 went about as well for U.S.-Japan relations as could be imagined. The two governments agreed on a plan to restructure their military alliance; the ban on U.S. beef exports to Japan was lifted (again); the two countries’ diplomacy appears to be well coordinated as they deal with vexing issues (Iran and North Korea); and the “Sayonara Summit” was a PR success (as anticipated). From all appearances, the foundation has been laid for a successful U.S.-Japan partnership that outlives the George Bush-Koizumi Junichiro “special relationship.”

Despite the bungled welcoming ceremony on the South Lawn and the absence of concrete deliverables, the Hu-Bush summit was a modest success, given the complex nature of China-U.S. ties and the thorny issues that plague the relationship.  Progress was made on market access and intellectual property rights at the Joint Commission on Commerce and Trade meeting that preceded the summit.  In the wake of the summit, Beijing and Washington stepped up cooperation on both the Iranian and DPRK nuclear issues.  Military exchanges were active this quarter, with a visit to China by Commander of U.S. Forces in the Pacific, Adm. William J. Fallon, the convening of the annual Defense Consultative Talks, ship visits by the U.S. Coast Guard Cutter Rush and the USS Blue Ridge, and a 10-member PLA delegation visited Guam to observe the Valiant Shield-06 military exercises.  In its semi-annual report to Congress, the Department of the Treasury noted that it was “extremely dissatisfied with the slow and disappointing pace of reform for the Chinese exchange rate regime,” but refrained from citing China as intentionally manipulating its currency regime.

After the impasse in the Six-Party Talks deepened this quarter, North Korea shocked its neighbors as well as the United States by launching seven missiles July 4 into the Sea of Japan.  One of these missiles was a long-range Taepodong 2 that theoretically might have reached the U.S., but failed, 40 seconds into its flight.

The missile tests fed a widespread perception in the U.S. that North Korea’s action represented a political failure for the Bush administration. U.S. financial and diplomatic pressures over the previous 10 months had neither contained Pyongyang nor caused it to submit to U.S. political demands.  Together with the U.S. refusal to offer any positive gesture toward North Korea, these pressures merely formed the backdrop to North Korea’s all too familiar defiance of the outside world.

The U.S. and South Korea held their opening round of negotiations on a Korea-U.S. free trade agreement (FTA) during early June. Among the most contentious issues were the U.S. demand to open the South Korean rice market to U.S. exports, and South Korea’s demand that the U.S. extend favorable tariff treatment, under the FTA, to all products produced in the Gaeseong Industrial Zone in North Korea. On the rice issue, South Korean negotiators gave no ground and are under considerable pressure from farmers not to allow U.S. rice into the country.  On the Gaeseong issue, U.S. negotiators rejected the Korean request, claiming that North Korean workers at the site are subject to harsh, exploitative treatment by the Pyongyang regime.

Finally, at a meeting in Singapore, South Korea’s defense minister and the U.S. secretary of defense appeared to reach general agreement that operational control of South Korea’s armed forces during wartime would be transferred back to South Korea after five or six years. The final agreement will be announced at the ROK-U.S. Security Consultative

U.S.-Russian relations continued on a tempestuous course during the spring.  As noted last quarter, U.S.-Russian relations have been in a downward spiral since 2003.  During the past quarter, elements of the leadership of both sides continued to spar verbally. Vice President Dick Cheney launched a broadside on the Russian government, during a public appearance in Lithuania. Vladimir Putin was happy to take up the challenge and obliquely referred to Cheney and/or the U.S. government as “comrade wolf” and a “bull in a china shop” shortly thereafter. The two nations appear to be circling one another in anticipation of the upcoming G-8 summit in July in Russia’s northern capital – and Putin’s hometown – St. Petersburg.  Although it is unlikely President George W. Bush will take a confrontational stand as many in Washington are arguing he should, the summit could prove to be frosty because Washington’s partners in Europe have seemingly also become disillusioned with Moscow. In Asia, Moscow and China continue to strengthen and formalize the Shanghai Cooperation Organization (SCO), which many see as a bulwark against the United States, especially in Central Asia.

In June visits to Singapore, Indonesia, and Vietnam, U.S. Secretary of Defense Donald Rumsfeld emphasized the importance of a continued robust U.S. role in Asian security as well as the necessity for security collaboration with U.S. Asian partners. Arms smuggling and espionage scandals in Indonesia and the Philippines respectively revealed some strains in U.S. relations but did not weaken mutual security activities. The United States – along with Japan, India, and China (all of whom rely on the Malacca Strait for much of their seaborne commerce) – offered the littoral states of Singapore, Malaysia, and Indonesia assistance for improving their anti-piracy capabilities. Washington has also begun to send equipment to Indonesia’s armed forces now that the ban on such transfers has been lifted. Finally, U.S. trade negotiations with Vietnam have led to the signing of a Permanent Normal Trade Relations agreement, the final stage before Hanoi’s admission to the World Trade Organization.

The major developments in this quarter included China’s military activism and greater emphasis on “soft power” diplomacy. Assessment of the high-level China-Southeast Asian interchange shows that while China’s influence is rising, Beijing continues to face several constraints and limitations in allaying Southeast Asian governments’ concern about its long-term intentions.

On April 13-15, Chinese Defense Minister Gen. Cao Gangchun visited Malaysia, Singapore, and Vietnam to enhance military cooperation between China and Southeast Asia. With more than 70 percent of Chinese imported oil coming through the Malacca Strait, China’s national security interests and stakes in Southeast Asia are rising.  According to the People’s Liberation Army’s (PLA) White Paper on National Defense in 2004, the defense of sovereignty, territorial integrity, and “maritime rights and interests” were all classified as “national security goals.” China may be regarded as a rising continental power, but its vast coastline makes it an important maritime nation as well.

Cao’s visit reflected a low-key approach that endeavored to minimize regional concerns about rising Chinese military and other power, and to seek greater common ground with neighboring countries. Outwardly, Cao’s trip to Southeast Asia amounted to little more than observations of the various military camps and establishments in Singapore, Malaysia, and Vietnam. Cao’s dialogues with his counterparts were said to include clarifying growing U.S. military involvement in Southeast Asia. There were no formal joint statements issued at the conclusion of the Southeast Asian leg of his trip.

This Chinese military activism comes at a time of greater U.S. military involvement in Southeast Asia and is seen by some observers as a sign of a continuing Chinese interest in regional strategic adjustments and realignments, especially with countries that provide military access to the United States. Singapore’s close military relationship with the U.S., for example, gives U.S. warships a convenient entrance to the region. Meanwhile, Singapore’s training fields in Taiwan (not to mention Lee Hsien Loong’s visit to the island in 2004 before he was prime minister) are also a cause of concern for Beijing.

As for the Malacca Strait, the longstanding problem of piracy on the high seas is a looming concern for China. The disruption of China’s energy supplies would be a great detriment to its burgeoning economy, and Cao’s visit highlighted China’s willingness to step up its effort to cooperate with Singapore and Malaysia in patrolling the Malacca Strait. In Vietnam, Cao’s visit was said to include consideration of Cam Rahn Bay.  The port facilities at Cam Rahn include two well-paved runways, a deep-water port, and a large storage site for petroleum. Due to its close proximity to Hainan Island, Cam Rahn Bay is strategically located to monitor and intercept communications in the southeastern coast of China. China complained for years over the Soviet Union’s use of the base against China’s interests, and presumably would oppose any U.S.-Vietnam military cooperation that would involve U.S. use of the base.

According to a report issued at the Aspen Institute Congressional Conference on U.S.-China Relations in April, China’s military modernization – especially the PLA Navy’s capabilities to secure “blue water” naval surface fleet – is a trend that will continue unabated and a reality with which countries in the region and the U.S. will have to come to terms. China continues to reassure its neighbors that its rising military and other power will not endanger their interests as Chinese officials remain well aware of the concern among many Southeast Asian governments regarding China’s long-term intentions.

The political gridlock in Taiwan caused by the scandals swirling around President Chen Shui-bian’s family has overshadowed cross-Strait relations in recent weeks.  Nevertheless, some small pragmatic steps have been taken by both sides. In April, despite Chen’s more restrictive policy on economic ties, Taipei finally approved investments in LCD production and computer-chip packaging and testing ventures.  In May, a weakened Chen publicly reaffirmed his “four noes,” a step that was welcomed by Washington and to a lesser extent Beijing.  In June, Taipei and Beijing announced that agreement had been reached on holiday, humanitarian, and limited cargo charter flights across the Strait, beginning later this year. In Geneva, the World Trade Organization (WTO) held its first review of Taiwan’s trade policies. PRC representatives participated, and the review was completed without the usual diplomatic histrionics.  Relative calm and such small steps are the most that can be expected for cross-Strait relations in the coming months.

Six years after the first (and only, so far) inter-Korean summit in Pyongyang, with its June 15 Joint Declaration ushering in a new era of “Sunshine” from the South toward the North – if not always vice versa – we might be entering a new phase. If multi-faceted exchanges between the ROK and DPRK remain brisk and look largely irreversible, as argued last time (and amply illustrated in the chronologies), this process may be becoming less one-sided.

As the second half of 2006 begins, South Korea is fed up – and is not disguising this behind honeyed words, as so often, for fear of offending Northern sensibilities. Two factors have prompted this new mood. Seoul was furious when in late May the North, at a day’s notice, cancelled an agreed upon long-delayed train test run on the two reconnected crossborder rail tracks, which have been physically ready to roll since last year. Rightly, it dismissed Pyongyang’s excuse of alleged instability in the South as “preposterous.” Coming just a week before key local elections, when the ruling center-left Uri Party of President Roh Moo-hyun was duly hammered by the conservative opposition Grand National Party (GNP), this was hardly a friendly or timely gesture by Pyongyang toward a government whose critics accuse it of being too generous toward Kim Jong-il, while demanding too little in return.

The result is an overdue outbreak of conditionality. Thus the South has agreed to help the North’s light industry – but only after those train tests. In June, the mood in Seoul hardened further, as fears grew that Dear Leader might be preparing to test-fire a Taepodong long-range missile for the first time since 1998. ROK Unification Minister Lee Jong-seok warned that such a launch would jeopardize further Southern aid. At a point where only a third of the 450,000 tons of fertilizer that the DPRK has asked for this year has been agreed and delivered, and with no agreement yet in place to send the usual 500,000 tons of rice, this is not a threat that Kim Jong-il can afford to take lightly.

A series of false starts characterized Chinese efforts to reinvigorate diplomacy to address North Korea’s nuclear weapons program this quarter.  Chinese negotiator Wu Dawei failed in his efforts to jump-start six-party contacts through a nonofficial meeting in Tokyo between U.S. Assistant Secretary of State Chris Hill and DPRK Vice Minister Kim Gye-gwan. Then attention shifted to whether the Bush-Hu summit might catalyze a resumption of Six-Party Talks, but the summit produced no apparent agreement between the two leaders and probably gave North Korea no reason to come back to the negotiations. Chinese State Councilor Tang Jiaxuan’s meetings with Kim Jong-il following that visit likewise yielded no diplomatic progress, while the quarter ended with another widely anticipated, but (as of the end of this quarter) nonevent:  North Korea’s widely anticipated and widely publicized launching of Taepodong 2, a multi-stage rocket. [Editor’s Note: The multiple launches of misiles July 4-5 will be taken up in next quarter’s analysis.]  The lack of progress took its toll on South Korea-China relations due to mounting frustrations in Seoul until Foreign Minister Ban Ki-moon visited Beijing for consultations on a coordinated approach toward North Korea at the end of June. China’s defense minister did manage a successful visit with counterparts in both North and South Korea in April.

China-South Korea economic relations centered on a shift in the bilateral trade balance as Chinese imports to South Korea have begun to outpace growth in South Korean exports to China.  South Korean foreign direct investment in China has continued to grow, while facilities investment in South Korea has remained low, leading to worries in South Korea over its own long-term competitiveness vis-à-vis China.  SK Telecom’s attempts to gain a significant stake in China Unicom are emblematic of South Korean investment opportunities in China, while South Korean telecommunications companies face slowing exports as China’s market matures.  POSCO completed a major new investment in a steel mill in Zhang Jia Gang, China, while Hyundai’s striking success in China was overshadowed by CEO Chung Mong-koo’s legal problems over questions of political influence buying and illegal wealth transfers to his son. Finally, despite efforts in recent years to curb “yellow dust” from China by planting trees in the Gobi Desert, this spring was one of the worst, with the dust containing considerably higher levels of toxic materials than in the past.

For the first time in over a year, the foreign ministers of Japan and China met on May 23.  Both ministers retreated to well-worn talking points on Yasukuni but agreed to move ahead in expanding exchange programs.  Afterward, Foreign Minister Aso Taro announced that Japan’s relations with China were moving toward normalcy and in early June, to further warm the atmosphere, the Koizumi government removed the freeze on loans to China.  In turn, China’s President Hu suggested that under the proper conditions and at an appropriate time, he would like to visit Japan.

The vice ministers of foreign affairs also met in Beijing to conduct the Fifth Japan-China Comprehensive Policy Dialogue. Meanwhile, director general-level discussions continued on the East China Sea.  Beyond a desire to keep talking, little progress was evident.

In Japan, political leaders jockeyed for position in the post-Koizumi prime ministerial sweepstakes.  Increasingly, foreign policy, Japan’s relations with its Asian neighbors, and Yasukuni-related matters assume growing importance in the political debate, with candidates attempting to find their footing on the issues.  In meetings with Japanese political figures, China’s political leaders and diplomats worked to shape the post-Koizumi environment in Japan.

Japan-Korea relations continued to be tense during the quarter. North Korea and Japan faced off over abductees, history, and the North’s presumed preparations for a missile launch. South Korea and Japan came close to a skirmish over the disputed Dokdo/Takeshima islands, and only intensive negotiations avoided a crisis between the two countries. With Japan and both Koreas seemingly locked into their respective foreign policy approaches, it is no surprise that there was little progress and much squabbling.

Five years after its inception, the Shanghai Cooperation Organization (SCO) held its sixth summit meeting in Shanghai in mid-June to celebrate its steady growth as a “mature” regional security body. In many respects, the SCO is also at a crossroads at both operational and philosophical levels: achieving internal cohesion without interfering with member states’ internal affairs, and increasing its international profile without appearing intrusive, at least in the eyes of the U.S.  While the key for the SCO’s sustainability is a stable Sino-Russian “strategic” partnership, Moscow and Beijing in the second quarter worked hard to coordinate their respective approaches to the Iranian nuclear issue, both inside and outside the SCO framework.