An agenda for the Federal Reserve’s review of its monetary policy framework


An agenda for the Federal Reserve’s review of its monetary policy framework



North Korea’s Options in 2007

Hyeong Jung Park
Hyeong Jung Park Senior Research Fellow, Korea Institute for National Unification, Republic of Korea

January 1, 2007

Last October, North Korea detonated a nuclear device despite strong opposition from all neighboring countries and the United States. The action cast a shadow over the multilateral negotiating effort sponsored by China – the Six-Party Talks – to de-nuclearize the Korean peninsula. Pessimists concluded that North Korea would not give up the nuclear weapons it already possesses any time soon, if ever. Even optimists agreed that finding the right package of incentives to induce Pyongyang to disarm and dismantle its nuclear programs had just gotten more difficult.

Level-headed pundits have long advocated that the United States adopt a more flexible North Korea policy. They argue that if Washington were to drop its demand that North Korea’s nuclear development stop before negotiations could begin and so leave some room for bargaining, then China could be persuaded to adopt a more stringent policy toward North Korea, leaving it no choice but to discontinue its nuclear weapons program. One suggestion of a more flexible approach has been that the administration place foremost priority on getting North Korea to cease operation of its five megawatt (MW) nuclear reactor at Yongbyon, which continues to produce plutonium for weapons, instead of its maximal focus on the complete, verifiable, and irreversible dismantlement of the North’s nuclear program (CVID).

For years the Bush administration had resisted this sort of advice. But its tactics have softened gradually since 2002, most evidently at the recent meetings of the second round of the fifth Six-Party Talks, in Beijing on December 18-22. In this round of meetings, the first since North Korea’s detonation of a nuclear device, the Americans did not shun direct meetings with North Korean officials, did not mention North Korea’s highly enriched uranium program (a point of contention and the catalyst in 2002 for the current crisis), and did not repeat the demand of CVID. The provisional American objective at the talks was in fact what the pundits have been advocating: to achieve a freeze of North Korea’s nuclear development in return for a promise of extended compensation. This step was envisioned as an “early harvest” en route to a final harvest to be reaped at the end of 2008—complete dismantlement of North Korea’s nuclear weapons development.

What was North Korea’s response to this change in American attitude and objective? Although the Bush Administration moved in the direction that its American critics have been urging, a “best guess” of Pyongyang’s perspective indicates why the recent round of talks had little chance of succeeding, which they did not.

First, North Korea was probably pleased with the resumption of the talks, but only because the meetings effectively brought to an end the increasing tide of criticism and rising tension that followed the nuclear test last October. Second, the North Koreans would likely think their persistence and the detonation of a nuclear device forced the U.S. to agree to what North Korea had demanded from the start: a phased, give-and-take resolution of its nuclear weapons program.

Third, North Korea would think the overall situation regarding negotiations with the U.S. was in its favor, and that the U.S. may further soften its position the longer the talks dragged on. Its logic would be that the Bush administration had not managed to check North Korea’s nuclear ambitions, and was in a weak position both internally and externally. North Korea, on the other hand, had already demonstrated a nuclear weapon capacity and still held cards such as a second nuclear detonation and a continuing increase of its plutonium stockpile.

Fourth, while maintaining its existing nuclear weapons until “normalization of relations with the U.S.” at an uncertain future date, North Korea would make use of the long and winding denuclearization negotiations to pursue two long term objectives: to lessen its dependency on China and on South Korea by improving and expanding its relations with the U.S. and Japan; and to acquire an equal footing with the U.S. in security matters in order to weaken South Korea’s position in discussions on establishing a permanent peace regime on the Korean peninsula.

Fifth, if giving up additional plutonium is to be North Korea’s sacrifice, Pyongyang would expect compensation no less than what it received in the Geneva Agreed Framework in 1994.

In effect, North Korea would demand the recovery of the status quo ante of October 2002 as the precondition for being willing to provide the United States is “early harvest” of stopping plutonium production. (At the same time, Pyongyang would exclude its nuclear weapons capability discussion.) Yet a review of steps necessary to restore the 2002 status quo shows just how far the situation has degraded. The settlement of the Banco Delta Asia issue, which North Korea has set as the precondition for discussions with the U.S., will be just the first in a long list of items. Pyongyang will also demand the termination of the U.S.’s “hostile” policy against North Korea which features U.S. financial sanctions, control of other illicit activities, and the proliferation security initiative (PSI); repeal of United Nations sanctions; and the supply of two light-water reactors of 2,000 MW capacity and of about 0.5 million tons of heavy oil per year as compensation for the electricity lost by shutting down the Yongbyon reactor. North Korea may seek to extract even more concessions as a price for abandoning its nuclear program, such as the cessation of joint U.S.-ROK military exercises and even the removal of United States military forces (USFK) from the peninsula.

Therefore, even with a new and accommodating U.S. North Korea policy, an agreement for a freeze of North Korea’s nuclear development will not be easy. Whether the Bush administration would be willing to take even some, much less all, of these steps is an open question. Washington’s new approach does, however, increase the chance for a common front with China and South Korea, the only possible way of ensuring a freeze of nuclear development in the short run and an eventual North Korean renunciation of nuclear weapons.

Facing Washington’s new accommodative approach, North Korea will try to break up its new common front with Beijing and Seoul and so avoid becoming trapped by coordinated pressure from its neighbors. Accordingly, the first priority of North Korea’s policy in 2007 will be to appease China’s anger over its missile and nuclear tests and maintain the substantial material support and de facto political support of South Korea. Its minimal objective will be to guarantee the continuance of economic relations with China and to influence South Korea to resume rice and fertilizer assistance.

South Korea links the resumption of this assistance, which it halted after North Korea’s tests of ballistic and cruise missiles in July 2006, with “progress” in the Six-Party Talks. To win back this assistance, North Korea may give a “flexible,” i.e. a positive but non-committal, answer to the “flexible” suggestion of a freeze with compensations that the U.S. made at the recent Six-Party Talks. South Korea can then “flexibly” interpret this as “progress” and feel legitimized in resuming its assistance.

In order to persuade South Korea to de-link aid from the Six-Party Talks, North Korea may launch a “unification” and “peace” offensive. North Korea now regards itself as a nuclear power and advertises increased self-confidence and civil morale, in particular in relations with South Korea. Against this backdrop, Pyongyang may suggest to Seoul high level inter-Korean “unification” and “peace” talks separate from the Six-Party Talks.

Practical requirements indicate that a relatively early response to the U.S. call for a freeze at Yongbyon and/or an early agreement for high level talks with the South are a necessity. North Korea will feel compelled to make a move by April or May, at the latest, for three reasons: the first is that fertilizer from South Korea must not arrive too late for the planting season; the second is that the rice should arrive before the peak of the famine period, which is mid-summer; the third is that North Korea’s renewed “unification” and “peace” offensive toward the South should not be interpreted as coarse intervention into South Korea’s presidential campaign, which will enter into its main phase in early summer.

If North Korea can not succeed in wining over South Korea, both China and North Korea will confront some real difficulties. Since 2002, North Korea’s relative economic stability has been secured mainly by a constant level of aid from South Korea and increasing trade with China. In their discussions about testing missiles and a nuclear weapon, the North Koreans must have foreseen and prepared for negative reactions and decreased aid, and it appears that, as of early 2007, North Korea’s economy has not suffered any serious additional predicaments as a result of sanctions. If North Korea must do without South Korea’s annual assistance of about 500,000 tons of rice two years in a row (2006 and 2007) however, and must also go without fertilizer (which would contribute to additional food production of 600-700,000 tons) in 2007, its economy will be significantly affected.

As a matter of fact, the withholding of South Korea’s rice assistance in 2006 has been the only meaningful loss incurred by North Korea after the missile tests in July and nuclear test in October. If North Korea can recover this loss, it can maintain minimal economic stability in 2007 and feel more relaxed in negotiations with other powers. Otherwise, China may intervene to stabilize North Korea, supplying what has been South Korea’s contribution, but the whole volume and cost of such Chinese assistance will be unprecedented and will be a heavy burden on Beijing.

In case it is unsuccessful in courting Seoul, North Korea may threaten or undertake a second nuclear test or try to endure a second “arduous march,” sacrificing its economy while resisting international political pressure for an “unfair” deal from the U.S. and others. Concerns in Beijing and Seoul, and also in Washington, about a new test and/or the political, economic, and social implosion of a nuclear state will exert moderating influences upon policy decisions in each capital.

With the second round of the fifth Six-Party Talks, we may be entering into a new juncture of another precarious stalemate with North Korea as a self-proclaimed and “half-acknowledged” nuclear power. It will last at least two and a half years, from now until sometime in the second half of 2009, when the new U.S. administration will be able to implement a new North Korea initiative. In the meantime, all concerned parties may prefer the continuation of the Six-Party Talks to an increase in tension and/or further crises, but for different reasons.

On the one hand, while dragging the talks out as long as possible, North Korea will persistently maneuver to become established as a nuclear power and take advantage of the talks as a way to defuse tension. On the other hand, Washington, Beijing and Seoul may be unable to provide concerted leadership to apply the decisive pressure on North Korea that is necessary to persuade it to give up its nuclear weapons program, and so the talks will creep along. Washington will be distracted by the Iraq war for several years, Seoul and Washington will be consumed by their presidential elections, respectively in 2007 and in 2008, and Beijing will be preoccupied with the Olympics in 2008. At the end of this juncture, North Korea will have become a technically and politically much more advanced nuclear power and may, with breathless anxiety, brace for another rounds of intensive and risky negotiations with the new U.S. administration.