# Toloraya Georgy.Collection of Essays on Russian Policy in Korea:1998-2003

Georgy Toloraya

Collection of Essays on Russian Policy in Korea: 1998-2003


Georgy Toloraya


Research Director of The Center for


Contemporary Korean Studies, IMEMO, Moscow


FOREWORD


The years of 1998 to 2003 proved to be a crucial time for Russian policy in Korea. After Kim Dae Jung's ascension to power and the introduction of his `sunshine policy' the efforts of Russia to balance its relations with the two Koreas and gain more say in Korean affairs started to be more appreciated both in Seoul and Pyongyang. The breakthrough in Russia's relations with Pyongyang, crowned by the first ever summit in July 2000, was preceded by largely unseen work of the diplomats, which became really productive since 1998 (when the new political structure headed by Kim Jong Il was officialized in DPR Korea). This breakthrough in turn increased Russia's role in Korean affairs, which was recognized internationally in 2003, when Russia became one of the key players in search of the multilateral solution to the North Korean nuclear crisis.

This collection of articles highlights some key elements in the accession of the current situation by the author (who was lucky to be a modest part of the underlying political process) as it was on the day of writing. No afterward editing was done in order to expose both mistakes and the right guesses in the analysis. The texts (some of them co-authored) are the "raw" versions- most of them, when published, underwent significant modifications. Views expressed are solely personal views of the author.


Georgy Toloraya,


November 2003


Contents


1.THE LIBERALIZATION OF FOREIGN ECONOMIC

RELATIONS IN KOREA:A REMEDY OR A POISON? Prepared for IMEMO in June 1999

2.THE KOREAN PENINSULA: A RUSSIAN PERSPERCTIVE-

PREPARED FOR SECOND KPNA SYMPOSIUM, KYOTO, DECEMBER 1999

3.Transkorean Transport Corridor with Regard to Situation in Inter-Korean Relations-Prepared for the 1st Joint Russian-Korea Railroad Seminar, Seoul, MARCH 2000

4.Security and Confidence Building in Korean Peninsula:a russian point of view- Prepared for the International Forum "Promoting International Scientific, Technological and Economic Cooperation in the Korean Peninsula: Enhancing Stability and International Dialogue", Rome, June 2000.

5.Russia and North Korea: an old flame-prepared for international herald tribune,july 2000.

6.A Newfound Old Partner in the- Prepared for "Far Eastern Affairs", No. 5, 2000 (translation by the magazine)

7.Russia and South Korea: Some Thoughts on the First Decade of Relations-(together with D.Kulkin) Prepared for "Far Eastern Affairs", No. 5, 2000 (translation by the magazine)

8.RUSSIA - NORTH KOREA: A new Axis for multilateral structure? -Prepared for IMEMO in july,2000

9.RUSSIA - the ROK:IN SEARCH OF COOPERATION MODEL-prepared for IMEMO in September,2000

10.RUSSIA AND THE TWO KOREAS: JOIN EFFORTS FOR EUROASIAN LAND BRIDGE-prepared for the 10th Session of the Northeast Asia Economic Forum, Changchun, China, April 2001

11.Korean Peninsula: Are There Things More Important, than Peace?-prepared for for Napsnet in April 2001

12.RUSSIA AND KOREA: NO NEWS IS GOOD NEWS- Prepared for

X11 IMEMO-IFANS Conference- Moscow, June 2002

13.Scenarios for North Korea-Prepared for Russia in Global Affairs in March 2003

14.President Putin's Korean Policy-Prepared for The Journal of East Asian Studies, Seoul in May, 2003

15.IN SEARCH OF FINAL SOLUTION TO KOREAN CRISIS: REGIME CHANGE OR REGIME TRANSFORMATION? -Presentation at the seminar " North Korean Nuclear Crisis and Beyond", Victoria University of Wellington, November, 2003


1.THE LIBERALIZATION OF FOREIGN ECONOMIC


RELATIONS IN KOREA:


A REMEDY OR A POISON?


Dr. G.Toloraya


-- Financial and Economic Crisis in Korea in Terms


of Globalization vs Economic Nationalism Paradigma


The financial-economic crisis, which originated in 1997 in East Asia, has spread in global scale and shook not only a number of national economies, but the whole concept of globalization, which used to be considered a prevailing trend in the development of humankind, entering the third millennium. The opinion that globalization and trade liberalization are contrary to national interests, at least of the less developed countries and economies, has gained force.

An Assembly of Asia-Pacific nations, which timed its gathering in Kuala-Lumpur to APEC summit in November 1998, condemned the "profiteers of globalization", who "bring instead of employment and progress unemployment, discrimination, and injustice"1. The prophets of such concepts interpreted the crisis as the proof, that globalization means only a new channel of economic domination by developed economies, a sort of more sophisticated neo-colonialism. For example, Malaysian Prime-Minister M.Mothatir have many times voiced similar opinions. Quite recently he said: "Not everything that is done in the name of globalization will achieve good results . We should always be on the lookout for adverse consequences and be prepared to take corrective actions or even to reverse certain globalization trends..."2 Curiously, some Russian experts (not to speak about left-wing opposition) take into account this ideas, speaking about the necessity to "study Malaysian experience of dealing with IMF"3.

In the atmosphere of growing dissatisfaction and dissapointment in economic internationalization even the U.S. President B.Clinton admitted during his November, 1998 visits to Tokyo and Seoul, that huge (up to $ 1,5 trln) trans-border capital flows can endanger economic stability of individual countries.

Kofi Annan, Secretary-General of the UN has admitted: "Today, in many parts of the world, globalization is rapidly losing its luster. Globalization is seen by a growing number of people not as a friend of prosperity, but as its enemy; not as a vehicle for development, but as an ever-tightening vise increasing the demands on states to provide safety-nets while limiting their ability to do so"4.

For many years Korea has also opposed globalization and internationalization despite growing pressure on her in 1980s-1990s. Korea stubbornly rejected the efforts by foreigners to achieve the "opening" of her economy and liberalization of "closed" sectors, especially banking, finance, certain services and real estate sectors.

In the period, preceding Korea's joining OECD, many conservative-minded experts warned, that bringing Korean economy in line with the advanced standards in the field of external liberalization would expose the much weaker South Korean economy to a pressure of competition it would not be able to withstand5. Mexican experience was widely cited as an example of adverse effects of joining the "globalization drive" too early, especially of liberating the trans-border capital flows. The critisism of "rootless globalization" and "efforts to seek the OECD membership without any reasonable ground" became one of the favorite topics of opponents of the government6. Some experts predicted that the set of measures, demanded by OECD and also in the framework of WTO would result in influx of "hot money" into Korea, which would make her very vulnerable to fluctuations of the world market.

Especially the Three Stage Market Opening Plan (1993-1997) as the Korea's answer to OECD demands7 (of which future vice-premier Lim Chang Yeol way the strong proponent)8 caused concern in financial circles. The measures of lifting the foreign exchange control were seen as dangerous, leaving Korea's financial market practically open to the short term capital flows9.

Many in Korea especially despised the fact, that Seoul was pressured by "international organizations such as the OECD and advanced countries" into adopting in 1995 a more drastic liberalization program10. The non-mainstream political forces strongly opposed the opening of service sector. For example, at the end of 1995 "Hankyoreh" wrote: "The opening of the domestic market generally has more loss than gain. Still, we are compelled to start opening the market because of the surge of pressure from other countries, on the basis of free trade and the rationale of the world market. If so, it is right to counter the pressure by opening the market on a piecemeal basis, resist the pressure as long as possible and open the market piece by piece. This is not the case with the government's stance, however. It opens the market as if to "do something nice" by opening the market all at once as if it were going to eventually do so anyway, or to make a show of its "generosity" by bulldozing the liberalization policy to suit the globalization slogan"11.

Furthermore, concerns that import liberalization would bring the surge in consumer goods' imports which would trouble the balance of payments and worsen the country's external financial situation were also widespread. By the 1990-s the atmosphere in Korean society changed to the extent, when purchasing foreign consumer goods was no longer seen as unpatriotic - rather, became prestigious. Easing of import restrictions resulted in sky-rocketing of trade imbalance (from +2,3 bln in 1993 to -$2,9 bln in 1994 and down to -15,0$ bln in 1996). Consequently the current account balance also changed from positive in 1993 ($1,0 bln) to negative in 1994 and down to -$23 bln in 1996, which paved the straight way to the foreign exchange crisis (See table 1)12. By November, 1997 currency reserves have dwindled to only $7 bln13 .

Table 1. Current account

US$ Billion


1990-95

average


1996


1997

Export, fob

Imports, fob

Trade balance

Services, net

Non-factor services, credit

Transportation

Travel

Other

Non-factor services, debit

Transportation

Travel

Other

Investment income, credit

Investment income, debit

Transfers

Private

Public

Current balance

85,3

88,0

-2,7

-2,6

13,8

5,6

3,4

4,9

15,9

6,2

3,9

5,7

2,8

3,3

1,0

1,1

-0,1

-4,3

130,0

144,9

-15,0

-8.0

23,4

8,8

4,9

9,8

29,6

10,2

7,5

11,9

3,7

5,5

0,0

0,3

-0,4

-23,0

138,6

142,5

-3,9

-5,6

26,3

10,6

4,8

10,9

29,2

10,0

7,1

12,1

4,0

6,7

0,9

1,2

-0,4

-8,6

Source: Bank of Korea.

The tragic events of 1997 seemingly showed, that the fears and warnings of the opponents of early liberalization of foreign economic relations proved to be well-grounded. "Korean national pride, which climaxed when Seoul joined the OECD has turned into a sense of misery and humiliation in just a year's time" - self-critically wrote the Korean press in the end of 199714. However did Korea really have a choice to remain closed in the globalizing international environment? And let us look from another angle - was not it the belatedness of the liberalization the real root cause of the crisis while the effects of the 1994-1996 limited measures just opened the floodgate for it?

Over the years (especially 1980-s-1990-s) the lack of external liberalization, rather then its excess, its "too late, too little" character can be singled out, as we see it, as one of the long-term factors, causing the gradual loss of competitive edge of South Korean economy. The competitiveness of Korea in pre-crisis period was steadily falling: according to a Hong-Kong survey, Korea, which was 25th among 46 countries in 1995 sled down to 30-th place in 1996 and to 34-th place in 199715. The overprotection by the government of the key industries, and, especially of the big chaebols led to a kind of loss by them of the sense of reality ("too big to fail" mentality). The lack of competition at the domestic Korean market (including financial and labor market) resulted in a phenomenon of Koreans starting to live "beyond their means" against the background of falling competitiveness of Korean export (while the compensation of employees accounted for 45,3% of composition of the production cost in 1985, it rose to 55,3% in 1996)16.

It should be reminded, that Korean exports have always been the engine for growth (it accounted for more than 25% of GNP in 1996)17. Exports were responsible for 4,4 of Korean growth rate of 9,3% in 1995, meaning exports attributed nearly a half of economic development of Korea18. In the 1990-s exports began to experience more and more difficulties. Corporate sector took little effort to improve the quality of the Korean goods, introduce innovation (technological competitive edge of Korean exports, according to a Swiss-based Institute survey, fell from a ranking of 28th in 1997 to 22nd in 1998)19. This was possible because most of supply to the closed Korean internal market came from domestic production, and the deliveries to the international marketplace were successful not only because of competitiveness of Korean goods, but also due to the favorable state backing, including very generous financial support of the banking sector, which, in turn, was closed to the real world competition.

This "greenhouse effect" resulted in growing vulnerability of Korean economy. Especially the increase in the external debt was ominous: during little more than three years (1994-1997) it almost tripled. So, it can be said that preservation of the closeness of Korean market was based on the borrowed foreign money.

In fact this is understandable since Koreans got used to widely employ foreign capital for economic growth during the decades of "Han river miracle": the share of foreign sources in gross domestic fixed capital formation was over 40% to 80% in the 60-s and even in the 1970-s fluctuated in the range of 10% to 50% (See appendix 1)20 .

Furthermore, a peculiar mix in partial deregulation of the short-term borrowings and continued restrictions on long-term borrowing led to a rapid build-up of short-term debt. The structure of indebtedness deteriorated (short term obligations share grew from minimum of 20,8% in 1986 to 63,5% as of the end of 1996)21. The capital inflow was not based on a market mechanism: rather, it resulted from volatile decisions of the government officials and bankers, pressed by oligarchs - a scheme, which can survive only under the conditions of closed, unliberalized markets.

By the end of 1997 the debt to equity ratio of the largest chaebols exceeded 518%, and total corporate debt amounted to 167% of GDP22. At the same time the productive capital inflow was limited: the ratio of FDI was just 0,9% of gross fixed capital formation in Korea (1992-1997), the lowest level in the world after Japan23. Korea in 1990-s was still considered to be one of the most difficult countries for foreign businessmen: "Many Western bankers and businessmen do not hesitate to pick Korea as one of the most hostile Asian countries to do business in", admits the Korean press, writing that "foreign businessmen even refer to themselves as being the handicapped"24. For example, while in the U.S. it takes 9 process steps, 23 document and 175 days to open a factory, in Korea it is necessary to go through 60 steps, present 312 documents and spend 1000 days on it! Korea's nationalism, xenophobia is the most notorious among the surveyed 10 Asian Nations, noted a Hong-Kong survey25. The primary cause of that seem to be the excessive national closeness, which was the factor and the consequence of the lack of external economic liberalization.

So, a tentative conclusion can be drawn, that the lack of liberalization, rather then excessive iternationalization created conditions for unfavorable economic tendencies in Korea. Ironically, the whole success story of Korean economy was based on the priority development of external economic relations. By the end of the 1980-s, however, the degree of their freedom to develop lagged behind the size, complexity and the growth potential of Korean economy. This is attributal both to a sort of "economic nationalism" of the businessmen and of the general public and the over-regulation by the government.

The dangerousness of this lagging behind in internationalization was pretty well understood already by Kim Young Sam government, who put the slogan of "segyehwa" (globalization) on the forefront. The then president named internationalization and globalization "the key to a successful modernization and adapting the country to the new conditions on the world stage"26. In economics this slogan meant the need for a radical internationalization of economy, liberalizing of cross-border transaction, lifting limitations on foreign exchange dealings, etc. The government announced a comprehensive package of measures to this effect on Dec. 5, 199427 and supported this policy on many other occasions.

However the de-facto results of implementing the "segyehwa" policy were not very encouraging. The bureaucratic inertia and, actually, the conservative national mentality, opposing the increase of foreign presence, made the "segyehwa" much of a declaration.

Of course, it is true, that considerable progress in import liberalization, elimination of the "red tape" for foreigners in financial sector was achieved by 1997. Since 1996 a number of limitations on outbound investment of Korean companies were lifted, including buying of foreign stocks and real estate abroad, on issuance of bonds by foreigners in Korea. From July 1995 the limit of foreign ownership of Korean stocks was lifted to 15% (in 1996 - up to 20%), 48 new businesses were opened for foreign investment. Joining the OECD in 1996 brought about liberalization of 47 of 81 restricted businesses, including sale of grain, air freight, certain financial, communication and culture services28. The number of restricted exchange operations was decreased from more than 100 to about 50. The rate of import liberalization increased considerably (reaching 98,5% in 1994, when only 150 items out of 10274 were restricted29.

However in reality all these efforts constituted only what could be called a half-hearted opening of a small door to Korean economy. Internationalization did not gain root in Korea. The "segyehwa" did not get support from the population; business circles and the bureaucracy stubbornly rejected the directives on liberalization and transparency. "The majority of the ordinary people believes the nation's economic troubles are partly caused by the nation's entry into the OECD", wrote Korean press30. In 1997 the senior presidential secretary, who was the chief architect of "segyehwa" admitted that globalization drive was still "half-baked"31.

Some critics were more vocal: the founder and honorary chairman of "Hyundai" Chung Ju Young accused the Kim Young Sam government in his memoirs of "spending the dollars, earned by sweat and tears (of Korean people) under the "segyehwa" slogan" and "destroying the Korean economy"32. So in the struggle between globalization and economic nationalism the former was clearly not the winner.

-- New Prospects for "Opening" of Korea


and Foreign Direct Investments


The financial crisis in autumn of 1997 became the turning point for "opening" of Korean economy. Having fiercely opposed the pressure for many years, Korea was finally "opened" by means of IMF bailout conditions, which played the same role as the great powers' gunships more than a century before that. The inauguration of Kim Dae Jung new government in early 1998 manifested the beginning of the process of new stage of reforms, including foreign economic liberalization in Korea, which, however, was conducted more because of the outside pressure, than due to the national consensus, expressed through an act of political will of the government.

What are the main parameters of IMF-era reforms with regard to the foreign economic relations?

The IMF program, agreed upon in December, 1997 in exchange for bail-out plan, lists liberalization of foreign economic relations as one of crucial components. The tasks, listed in the program according to Korean government, include:

- accelerating the schedule for allowing foreign entry into the domestic financial sector, including allowing foreigners to establish bank subsidiaries and brokerage houses;

- elimination of trade-related subsidies;

- elimination of restrictive import licensing;

- elimination of import diversification program (designed to check the imports of Japanese goods);

- streamlining and improving the transparency of the import certification procedures;

- lifting of the ceiling on foreign ownership of Korean stocks;

- allowing for foreign bank subsidiaries to purchase equity in Korean banks;

- allowing foreign investors to purchase, without restriction, domestic money market instruments;

- allowing unrestricted foreign investment in the domestic corporate bond market;

- reducing restrictions on foreign direct investment;

- eliminating the restrictions on foreign borrowings by Korean corporations;

- publication of relevant data33.

The government of R.O.K. worked and consistently implemented the set of measures to fulfill these obligations.

Measures to implement trade liberalization were taken, which resulted it the removal of quantitative restrictions in regard to the majority of items and lowering of the average tariff rate on manufactured goods to around 6%. The government plans to eliminate restrictive import licensing by January 1999, and the import diversification program is planned be abolished by June 199934. At the end of 1997 25 products were removed from the list of items, that could not be imported from Japan, with remaining 88 to be liberalized in three steps (which sure will bring in lots of Japanese consumer goods and aggravate the trade imbalance with that country). The government abolished a number of trade-related subsidies, with no more to follow, expanded the coverage of automatic licensing approval system to reduce non-tariff barriers35.

Steps are taken to streamline and improve the transparency of the import certification preceding.

On the 3rd November 1998, prior to APEC meeting in Kuala-Lumpur the R.O.K. government decided to speed up its participation in EVSL (sectoral liberalization) in timber products (from 40 to 80%), energy (from 70 to 90%) toys (to 100%), medical equipment (from 60 to 90%). Fish and fish products are liberalized by changing the category of 43 positions (but remain at the level of 85%). Also, the precious stones, chemicals will be liberalized to 67%. So, we are about to see a fierce competition on Korean market, which will probably have both positive and negative bearing on the local producers.

The capital market liberalization is also impressive. The ceiling on aggregate foreigners' equity ownership and individual foreign ownership were eliminated in May, 1998. The restrictions on corporate financing from abroad were eased (p.e. corporate foreign borrowing of over 3 year maturity has been freed). All limits on foreign investment into government, corporate and special bond markets have been lifted from 1998. Foreigners were allowed to be appointed to the banks board of directors. Hostile M & As by foreigners were liberalized in May, 1998. As a result by April 1998 stock holding by foreigners totaled 18,0 bln. Won, or 19,1% of entire market capitalization (of which 16,0 bln were portfolio investment)36. In banking sector German Commerzbank AG became the second (after Bank of Korea) largest shareholder of Korea Exchange Bank with a 29,8% stake by injection of US$ 250 mln. Hana Bank was induced by capital from IFC (7,0% ownership), Koram Bank - by Bank of America (16,4% ownership), several non-banking financial institutions were also induced by capital from Commerzbank, Socite Generale, Barclays Bank, Regent Pacific Group, etc. to the sum total of $1,083 mln (as of July, 1998)37.

The old Foreign Exchange Management Act is being replaced by a new Foreign Exchange Transaction Act, considerably liberalizing the foreign exchange transactions. On the first stage (up to April, 1999) a "negative list" (deregulating all but few foreign exchange and capital flows) will be introduced. On the second stage (up to end of 2000) current account transactions will be fully liberalized with only a few exceptions, for example, restrictions related to national security concerns and criminal violations. This liberalization applies to virtually all capital account transactions, including overseas borrowings and investment by domestic residents, and portfolio investment by foreigners38.

In order to minimize any adverse effects resulting from liberalization, a sophisticated information system will be established in order to discourage capital flight and international money laundering activities. Also, certain safeguards will be introduced should the need arise to curb a temporary influx of "hot money"39. However, the vulnerability of the local financial system would hardly decrease as a result.

Other noteworthy reforms to encourage the inflow of foreign capital include, for example, lifting of limits on foreign exchange rate fluctuations 40.

Allowing foreigners to acquire and own real estate in Korea is of special significance, including an important psychological aspect. Koreans have always been very sensitive about land (due to its scarcity), especially of foreigners getting hold of it (it was permitted only for business purpose in limited cases and foreign corporations had to dispose of non-business use land acquired through corporate M & As). The amendment of Foreigners Land Acquisition and Management set in May 1998 allowed both foreign residents and non-residents to purchase land. Subsequent measures to reduce taxes and create the infrastructure for international estate dealings were taken.


x x x


What is most significant about Korea's general approach to foreign economic relations' liberalization is the role slated for Foreign Direct Investments (FDI). They are singled it out as the key leverage to modernize the economy.

Retrospectively already the Kim Yong Sam government was concerned with slowing down of FDI in Korea (See Table 1) in late 1980-s - early 1990-s (during 1988-1992 FDI in Korea stood at $5,5 bln compared with enormous $87,6 bln in China, $30,4 bln in Thailand, $24,7 bln in Malaysia).


Table 2

Foreign Investment in Korea

(Unit: US$ million, Case, %)


90


91


92


93


94


95


96


97


98 (Jan-June


Total


93-98


Case


3386


286


233


273


414


556


596


638


361


6,743


(% of change)


-


-


-


(17,2)


(51,6)


(34,3)


(7,2)


(7,0)


(10,7)


Amount


7,874


1,396


894


12,044


1,317


1,941


3,202


6,971


2,461


27,101


(% of change)


-


-


-


(16,8)


(26,1)


(47,4)


(65,0)


(117,7)


(-44,9)


Source: А.В.Воронцов. Республика Корея: социально-экономическая структура и торгово-экономические отношения с СНГ-М, 1998, с.40; KCCI Business Journal, 44, 1998, p.22.


The key factors for lack of interest of foreign investors in Korea were rightfully named at that time as follows: excessive wage level, tough labor movement (a survey of foreign business leaders in Korea cited the potential for labor management conflict as the single most important obstacle to doing business), soaring land and financing prices, rigid banking policy, bureaucratic red tape41. In June, 1993 the government announced the five year Foreign Investment Liberalization Plan. On March 2, 1993 the revision of Foreign Investment Regime was announced. In April, 1995 the government introduced "comprehensive process system", under which the establishment of foreign investment should be completed within 45 days (15 days for minor projects).

The amendment or the "Foreign Capital Inducement Act" to the "Act on FDI and Foreign Capital Inducement" (which included M & A in FDI) in 1996, adoption of FDI liberalization Plan of May, 14, 1996 are also worth noting42. All these measures resulted in the increase in FDI (including M & A) especially in 1994-1995 (see Table 1), but the share of it still did not exceed 2,3% of GNP in 1996 (as compared to Britain's 28,5%)43. As of June 1998 53,3% of total FDI ($14,4 bln) went into manufacturing, while that in service sector amounts to 45,7% ($12,4 bln US) (see Table 3).


Proportion of FDI in Manufacturing and Service Sectors


Table 3


(Unit: US$ million, %)


95


96


97


98 Jan-June)


Total


Manufacturing


sector


Amount


884


1,930


2,348


1,486


14,443


%


45,5


60,3


33,7


60,4


53,3


Service sector


Amount


1,057


1,254


4,568


821


12,387


%


54,5


39,2


65,5


33,4


45,7


Source: KCCI Business Journal, 44, 1998, p.22.

Kim Dae Jung government put creation of favorable climate for FDI as one of the key objective of its economic policy in overcoming the crisis (maybe, little exaggerating its importance as opposed to portfolio investment).

The president through his TV addresses persuaded the electorate to welcome foreign direct investment. Citing such examples as Toyota USA and IBM Japan, he has stressed that regardless of the country of origin, any company bringing capital to Korea and creating jobs for the Korean people is a Korean company. In the age of globalization, mercantilist notions based on the idea of an independent national economy have no place, he stressed. Kim Dae Jung has personally met with international investors and business leaders to attract foreign investment and sought cooperation from the leaders of other countries on such occasions as the ASEM held in April, 1998. It looks like he gets support of the population: a recent poll showed that 87% of Koreans believe that foreign participation is important to the Korean economy44.

Speaking in Hong-Kong in November, 1998 Kim Dae Jung admitted, that until recently foreign investors, especially ethnic Chinese could not be active in Korean market, because of the virtual ban on real estate ownership by foreigners and blocking the inflow of capital by regulations on foreign currency transaction. However, now the conditions are created for foreign investors both to want to do business in Korea and be able to do so with confidence, he stressed and continued as follows:

"The R.O.K. is being born again into a nation, where any competitive person, regardless of nationality, can do business freely.

The R.O.K. government has removed such obstacles as the various regulations, that had hampered the business activities of both domestic any foreign companies"45.

Among the practical measures in support of this policy line the initiatives, announced on March, 30, 1998 to reform FDI and Foreign Exchange and Capital Transaction Systems, including introduction of the New Foreign Investment Promotion Act are especially worth noting.

Since February, 1998 the foreign investment has been steadily increasing, largely because of increased M & A's by foreigners. That is reflecting the fact that sell-off volume in Korea's M & A market nearly tripled the buying in 1998. The market is actually driven by foreign investors. During the first four months of 1998 foreigner's acquisition of existing stock amounted to $494 mln, which made up 43% of the total foreign investment. However M & A market is considered by experts to be in the need of radical deregulation and relevant brokerage infrastructure is to be developed46.

On April, 1 and May, 8 1998 Korea opened, in whole or part, 30 additional industries to FDI, including such important as securities business and real estate. The remaining 3% (31 out of 1148) restricted industry branches include, however, not only "natural" national monopolies, like air traffic control and regional marine transportation, but also such potentially lucrative fields as telecommunications and broadcasting. Foreign participation in these industries could not only the improve the service by bringing in completition but also greatly push the actual internationalization and globalization degree of the nation. In November 1998 the government moved to allow foreigners to engage in exploitation of natural resources in Korea, submitting corresponding bills to the National Assembly47.

The current government policy on FDI based on the Foreign Investment Promotion Act has the following higligths:

- The establishment of an investor-oriented support system and the provision of a one-stop service for foreign investors to speed up the whole process of investment.

- Various foreign-investment related procedures are streamlined and incorporated into a single legislative framework to fast-track the process of FDI.

- Additional incentives to foreign-invested enterprises are to be introduced, such as expanded tax benefits, subsidies for employment, and subsidies to assist training.

- The existing FDI notification-acceptance system is to be replaced by a notification system to prevent the denial of notification.

- The number of documents to be submitted regarding FDI procedures is to be drastically reduced. The "Comprehensive Process System" is introduced to minimize processing time by addressing similar FDI-related issues at the same time when they can be grouped. An "Automatic Authorization System" is introduced to deal with matters not pertaining to any particular group. Hence, in those cases where there is no response to an application within the designated (seven-to-90 day) period, such an application will be regarded as being automatically approved.

- National Tax: Tax exemptions and reductions currently provided only to foreign-investment projects involving highly-advanced technology and businesses located in Free Export Zones (265 businesses in 7 sectors) will hence be offered to a wider range of industries (516 businesses in 9 sectors). Among the types of businesses which will benefit are those in areas of advanced industrial support such as industrial design and advanced distribution systems. The period of tax concession will be extended from the current eight years (five years of 100 percent exemption, and three years at a 50 percent reduction thereafter) to 10 years (seven years at a 100 percent exemption and three years at a 50 percent reduction thereafter).

Local Tax: Foreign investors will also be exempt from such local taxes, as registration tax acquisition tax, property tax, and aggregated land tax. Local governments will be empowered to offer concessions on tax rates for periods of between eight to 15 years, and they will have to compete for FDI.

Property Lease: Not only state-owned properties but local government-owned properties too will be leased at reduced rates. In addition, the terms of leases will be expanded from the current 20 years to 50 years, and, if necessary, can be extended by additional 50 years. Rent reduction or exemption is possible in Foreign Investor Industrial Parks, National Industrial Parks.

Eligibility for these incentives (now limited to advanced technology industries) will be expanded to advanced industry support businesses and others which are so designated in consideration of their impact on employment and scale of their proposed investment.

In the case of local governments reducing the rental at their industrial parks for the purpose of inducing FDI, the financial burden thus incurred will be shared by the central government through subsidies and support of training costs. Such financial support will be provided in accordance with the scale of job creation produced by the foreign-investment project.

Free Investment Zones will be established to accommodate large-scale FDI investors. Their location will be determined at the request of foreign investors. In these zones, foreign investors will be offered various forms of support, including infrastructure and tax support (tax reduction or exemption for 10 years) in addition to the regular incentives provided to foreign investors. For example, approval is not needed when dividing land in FIZ, foreign-invested companies in FIZ automatically receive the right for export and import, they are permitted to conduct business in sectors, reserved for small and medium companies48.

The government also designated KOTRA as the one-stop service channel for foreigners, seeking to invest in Korea by establishing the Korea Investment Service Center (KISC) within KOTRA framework.

KISC was opened in July 1, 1998, for provision of a broad range of services to foreign investors ranging from investment consultation to plant establishment and ex post facto project management. It is divided into four divisions.

- Investment Planning Dept;

- Investment Promotion Dept;

- Investment Cooperation Dept;

- Investment Consulting Office.

Designating its overseas trade offices as investment promotion centers, KOTRA identifies those enterprises possessing state-of-the-art technology as targets for foreign investment inducement. So far, it has added to its database some 3,000 companies which generate more than $10 million in exports annually, and which have the potential to invest in East Asia.

Some 350 which have exhibited interest in investing in Korea have been selected as prime target companies KOTRA plans to induce investment from them by providing the following range of services to them:

- Keeping them updated on Korea's investment climate.

- Undertaking market research concerning investment feasibility, market surveys, joint-venture partner searches.

- Establishing those enterprises wanting to invest in Korea and assisting them realize their investment.

- Dispatching task force teams consisting of investment-related experts.

KOTRA provides real-time information on the national investment climate with respect to finance, foreign exchange, trade, labor and industry including general information on Korea worldwide through the Internet.

The agency will also establish the Cyber Investment Service Center, through which it will electronically provide foreign investors with investment information, related administrative services, the opportunity to address complaints, and project after-service49.

The future direction of Korean investment policy will focus on ensuring foreign investors enjoy the same rights as domestic corporations and removing all barriers in this respect. Hitherto, policy has been geared only to liberalizing market entry and simplifying administrative procedures. From now on investment policy will be given top priority in the process of structuring broader economic policy. "FDI is regarded as the key to overcoming the current economic difficulties and to coping with industrial globalization" - states the government of R.O.K.50.

Even though initiatives aimed at eliminating discriminatory treatment against foreign companies may be set in place, such discrimination can still occur. Current policy has been focused on the outcome of discrimination rather than the motives behind it. Accordingly, the government is now looking to address possible areas of conflict with foreign investors to ensure discriminatory behavior does not arise. An Ombdusman institution has been established within KISC for foreign investors.

Besides overt discrimination, arbitrary and irrational attitudes toward foreign participation in the economy can present formidable barriers to the promotion of inbound foreign investment. Bearing in mind the seriousness of such impediments, the need has been cited for the public, the unions, government and business alike to obliviate inappropriate business practices, attitudes, and social behaviour, and to encourage the awareness of the general public that foreign investment is a vital factor in Korea's future development51.

One of the practical steps, taken by Korean government, was to sooth its most important foreign investor (and most vocal critic) - the USA. During a meeting in Washington in June, 1998 the presidents of the two countries agreed to work out a Bilateral Investment Treaty. Korean Minister of foreign affairs and trade, explaining the significance of the document, pointed out: "The Bilateral Investment Treaty will provide U.S. investors with significant benefits as if guarantees far more advanced investors' rights than the traditional investment agreements that focus on the protection of "post-investments".

First, the treaty will ensure that U.S. investors are treated as favorably as Korean nationals from the "pre-establishment" stage of investment. Second, the treaty will provide U.S. investors with the right to transfer funds into and out of the host country without delay at the current market rate of exchange. This covers all transfers related to investment, including profits, interest, of contributions to capital. Third, the treaty will limit the ability of the host government to impose performance requirements such as mandatory transfer of technology and local R & D requirements. Last but not least, the Treaty will give U.S. investors the right to refer an investment disputes with the host government to binding international arbitration"52.

To sum up, the measures taken by Korea in response to pressure for opening its investment market really made it possible for foreign companies and individual to choose and get "the cream" of Korean industrial potential. However, the response was not that active: in 1998 the foreign investments, especially the direct investments, still lag behind the previous year's figures. It looks as if the foreign investors still think it dangerous to make hasty decisions as concerned to investment in Korea and the economy must be in a much better shape to reverse this sentiment.


x x x


The above analysis brings us to a conclusion, that the progress in Korea market opening and especially in FDI sphere is really profound and irreversible. However many people ask themselves: will these changes make Korean economy stronger and more independent? Is there any guarantee, that the strict following to the receipts of IMF (and USA) would not result in more dependency and submissiveness of Korean economy to the "great economic powers" (such as U.S., Europe, Japan?) This line of argument is accepted even by the U.S. experts, for example, a well known specialist on Korean economy A.Krueger, who admitted:

"Bilaterally, it's much tougher for Korea to get her way in the U.S. market than it is for U.S. to get her way in the Korean market"53.

And some of Korean officials are also making irritated comments on this issue: the deputy foreign minister recently said: "Washington should understand, that it is necessary to give R.O.K. a recuperation time, and only after that demand from her the degree of economic openness, the Americans are trying to achieve"54.

Still other even more philosophical question is as follows: would the radical and hasty dismantling of the regulatory system, which was one of the cornerstones of the economic success story of Korea, give positive boost to economic progress by liberating market forces, or would it lead to degeneration of the key industries and their submission to foreign competitors (automobiles and electronics seem to be the most worrysome industries, since their products have already significantly pushed out some competitors from the world market)55.

The developments with the "Big Deal", or severely cutting the scope of the country conglomerates, "Chaebols", which were the backbone of economic progress, is also worth watching from that angle.

Now it is still too early to come to a conclusion, whether internationalization and openness is more a cure or a poison to Korea - even a medicine taken in excess becomes poison, and vice versa. The outlook as a whole seem to be more optimistic and in line with the tendencies of the world development towards more openess and internationalization. Russia, although on much lower stage of market development and economic internationalization, also confronts very similar challenges and arguments. That means, that both countries should watch each others progress with increasing attention and interest.


1 "Izvestia", Moscow, 17.11.98.

2 Korea Herald, 17.11.98.

3 Vek, Moscow 45 (311) - 1998.

4 Adress by K.Annan to the UN Association of R.O.K. Seoul, 23.10.98.

5 See, p.e. Korea Herald, 24.05.98.

6 See "Хангёре синмун", 16.11.95.

7 Financial System in Korea - Bank of Korea, Seoul,1995, p.21.

8 See Korea Times, 25.09.93.

9 See Korea Times, 09.09.94.

10 Korea Herald 12.02.95.

11"Хангёре синмун", 16.11.95.

12 Bank of Korea materials.

13 Korea Herald, 25.11.98.

14 Korea Newsreview, 20.12.97, p.16.

15 Korea Herald, 25.03.98.

16 OECD data.

17 Korea Newsreview, 11.04.98, p.28.

18 Чунан Ильбо, 08.02.96.

19 Korea Herald, 25.05.98.

20 H.Kohama. Japan's Development Cooperation in East Asia and its Impact - Paper presented at the Conference on Economic Cooperation in the Asia-Pacific community - Seoul, November, 1993, p.32.

21 Korea Herald 01.05.98.

22 Korea Herald 16.04.98, 25.03.98.

23 Korea Focus, September-October 1998, p.154-155.

24 Korea Times, 02.11.93.

25 Ibidem.

26 Korea Herald, 07.01.94.

27 Korea Overseas Information Service, Backgrounder 128, Dec. 10, 1994.

28 Ministry of Finance and Economy - KPS - 14.05.96.

29 How to Gain Access to Korea Market-AFTAK, Seoul, 1996, p.19.

30 Korea Times, 24.05.97.

31 Korea Herald 08.01.97.

32 Korea Herald, 16.03.98.

33 MOFA Summary of IMF Program for Korea, 05.12.97.

34 Challenge and Chance: Korea's Response to the New Economic Reality.- Seoul, MOFE, 1998

35 Korea in Transition: Reforms Today, Rewards Tomorrow - Seoul, 1998.

36 Korea Herald, 15.04.98.

37 Korea Economic Reforms - Progress Report - Seoul, 1998, p.5.

38 Ibidem, 1998, p.26-27.

39 Korea's Economy Reinvented: Strategy Details and Progress. - Seoul, MOFE, 1998, p.29.

40 Korea Focus, September-October, 1998, p.62.

41 Korea Times, 09.11.93.

42 Тон-а Ильбо, 15.05.96.

43 KCCI Business Journal, 44, 1998, p.20.

44 Korea in Transition: Reforms Today, Rewards Tomorrow, p.12.

45 Korea Times, 20.11.98.

46 KCCI Business Journal, 44, 1998, p.12.

47 Korea Herald, 26.11.98.

48 KCCI Business Journal, 44, 1998, p.23-24, Korea Economic Reforms, Progress Report, October, 1998, p.25.

49 KCCI Business Journal, 1998, 44, p.25;

Investing in Korea - Now is the Time, - Seoul, 1998, p.15.

50 Investing in Korea - Now is the time - Seoul, MOFA, 1998, p.9.

51 KCCI Business Journal, 44, p.24-25.

52 Minister Park Chung Soo address to 2nd U.S.-Korea Business Meeting - Seoul, 15.06.98.

53 The Multilateral Trading and Financial System: Challenges Ahead - Seoul, 1995.

54 MOFA data.

55 See, p.e. Korea Times, 5.12.97.


2.THE KOREAN PENINSULA:


A RUSSIAN PERSPERCTIVE


PREPARED FOR SECOND KPNA SYMPOSIUM,


KYOTO, DECEMBER 1999


G.Toloraya,


Deputy Director


First Asia Department


Russian Ministry of Foreign Affairs


The positive outlook for the future developments in Korea, expressed in the Keynote speech, can be shared. However, the positive tendencies of the year, elapsed after the First KPNA Symposium, are mostly of regional nature (US - North Korea rapprochement in the wake of Perry's report, North Korea de-facto acceptance of Seoul's policies of separation of economics from polities, a recent break through in Japan-North Korea relations in the wake of Murayama's visit to Pyongyang). At the same time global tendencies do not seem to favour reduction of tensions in Asia (US - Chinese contradictions, reappraisal of Russian foreign policy in the wake of Yugoslav war and Russian dissatisfaction with certain aspects of American policy, concern about TMD plans in Northeast Asia, etc.). Double caution is needed to protect the gentle flower of emerging stabilisation in Korea from cold winds from the outside.

For this understanding of North Korea is of special importance. Prof. Scalapino's depicting if as a traditional society is very much relevant. Up until now, the lack of understanding of the essence of Pyongyang regime, even among the brethren in South Korea, is both surprising and worrisome. Most outside approaches and comments are based more on the emotional rejection of the "totalitarian jail", while failing - or not willing - to grasp the logic behind the actions, to find out soberly what makes this machine tick. And where it will move next. Therefore the actions of Pyongyang puzzle the outsiders, earning it the label of unpredictability.

North Korean model in its classic form does not correspond to a definition of "State" in the Western traditional sense of a word. It is rather a paramilitary entity with strict hierarchical organization and non-economic motivation. This society has its very special morals and ideologies, which are so distant from universal standards that sometimes cause sheer misunderstanding and mockery (although there's really nothing to laugh about). Its "raison d'etre" is the preservation of the current structure and its ruling elite, which makes its hostile to everybody and everything, which might be considered a threat. A propos it should be noted, that how much undemocratic in a usual sense this society is, its elite is not totally alienated from the population as is widely assumed: in fact, upward mobility exists, and maybe it is not much more difficult for an average North Korean to become a ranking party cadre or a director of a plant than for a, say, average South Korean to become a chaebol owner or a parliamentarian. And this society is changing too.

However in a classical North Korean code of conduct (under a double standard) any action for strengthening the system and against the enemies (including internal traitors) is by definition "glorious", although it not may be interpreted as one by the surrounding world.

Can such an entity be regarded as dangerous? The answer depends on - to whom. It certainly is for those perceived as enemies, who want to undermine it. The difference, often overlooked intentionally or unintentionally, is that in fact, in the era of cold war and world ideological rivalry North Korea was probably more dangerous, as Kim Il Sung still cherished the dream of "communizing" South Korea (and, maybe, shared some of the orthodox Stalinist illusions about the final victory of communism). The goal have changed 180 degrees after the break-up of the Soviet Union and Kim Il Sung's death (although not simultaneous, these events really signified the new era for North Korea's international position). From that time on the utmost task for DPRK became to survive, to withstand "one to hundred" the pressure of the hostile world. And in North Korea's case the solution is searching for is simple: to be left alone, to arrest anybody's attempt to change its system.

Another, important, but secondary goal is to get outside assistance to provide for not only subsistence level of survival, but also for some development. Those, who render this assistance without prying into internal affairs are tolerable: those, who give, but try to dictate, are opponents; and those, who only try to "open" and "reform" the country, are erstwhile enemies and could be dealt with accordingly, that means, without any mercy or moral hazards. Others are, in general, more or less indifferent, although "moral support" is always welcome.

Objectively speaking North Korean regime is rather effective in attaining its real goals (among which the "solving of the food problem" might not be the highest priority). Keeping the political structure intact after traditional communist model has disintegrated almost everywhere is really not an easy task - but North Korean regime has so far succeeded. Regardless of economic plight, the social control is still effective enough to prevent at least wide-spread protests of dissent. That shows that North Korean ruling structure is a really efficient machine, faithfully implementing the commands and tasks set to it. Another illustration is the skill North Korean diplomacy is using vis-а-vis the world's centers of power. Is not exactly possessing military party with the U.S., North Korea don't look like a born loser in the diplomatic game with Washington.

Two tendencies are now seem to be struggling. First - to try to make Pyongyang do something by pressure and/or force. Second - to try to do the same by incentives, by persuading or "engaging". The second approach (manifested by Kim Dae Jung's "sunshine policy" and "comprehensive approach") is of course much wiser than that of DJ's predecessor (who based his policy on the wrong notion of North Korea's impending collapse). The problem lies however, in the simple fact, that the final goals of both approaches seem to be the same - to introduce changes in North Korea and eventually modify its system to an extent, when it would cease being itself - either disintegrate totally, or voluntarily fall into South Korea hands. The simple-mindedness with which "creation of conditions for reforms and openness" in North Korea was named as one of the elements of the South-proposed "package deal", testifies to the fact that South Koreans do not take into consideration that these words equals for Pyongyang leaders to an appeal to overthrow their regime. Therefore North Koreans do not take "sunshine policy" at the face value. "The enemies did not succeed to strip us naked by the cold wind, and we would not do that due to sunshine either" - they say bluntly.

So to make "engagement policy" successful it is necessary to make North Koreans believe it is not aimed at liquidating North Korea as a state. And North Koreans are no easy believers. They do enjoy the fruits of "sunshine policy", but essentially the situation of diplomatic rope-pulling has not changed much. North Korea will try to take the "poisoned carrots" carefully, to the extent it would not cause indigestion. And as it is, the policies of North and South are parallel lines which will never meet.

What can be the alternative? Probably a policy, that is based on pragmatism and recognizing the fact, that North Korean elite (Kanbu, which are estimated, together with family members, at about 1 mln people) won't go voluntarily or prefer death (which would be their destiny in case of forceful unification) even to the rather miserable life they lead. So there is no use menacing North Koreans with a Yugoslav or Iraqi scenario: they know they can inflict damage on their foes unacceptable enough to prevent that kind of development. And there should be no illusions that North Koreans would not see the "double bottom" of the engagement policy.

So the real alternative is coexistence - and letting the North Koreans to introduce themselves the changes they badly need in a way and pace, which would not shake the stability of society and would not endanger the elite. In that sense the fifth scenario pointed out in Prof.Scalapino's report, seems to be the most realistic one. After all, from the point of view of economic activities North Koreans are in no way less talented of laborious than Chinese and South Koreans. Helping them to bridge the gap to the modern world economically would lessen tensions and introduce more security. In that sense there is really no alternative to the declared spirit of "sunshine policy", because this is really the necessary station on the long road to national reconciliation in Korea.

The crucial question is: What kind of guarantees North Koreans would consider sufficient? - They do not believe in declarations or political statements, or even treaties and now, in Post-Yugoslavia era, they are still more convinced words or good intentions do not mean much. And in North Korean case even good intentions are not there. De-jure, US and Japan do not recognize the fact of existence of North Korea, and South Korea constitutionally considers it to be the part of its territory. The world community seems to be rather slow in posing these questions, let alone looking for answers. However, the understanding that all the parties have their interests and rights to defend them already dawns on some quarters. In North Korean case that implies recognition from the US, Japan and, yes, South Korea; the dependable pledge not to try to change North Korean system. A guarantee to make this pledges dependable could be the participation of China and Russia in them, but maybe North Koreans would not think it's enough.

To find out and to accommodate all the interests of all the parties concerned a lengthy multiparty political process is needed. The present symposium seems to be a good opportunity to start the discussion.


3.Transkorean Transport Corridor


with Regard to Situation in Inter-Korean Relations


Abstract of presentation by G.Toloraya,


Deputy Director, 1st Asian Department,


MOFA of Russia


Seoul, 30-31.3.2000


The idea of joining North and South Korean railroads already has certain history. However this concept from the start met lukewarm response in Pyongyang. North Koreans argue, that due to "separation of the motherland" and "security concerns" renewal of rail traffic between North and South is not on today's agenda. One can understand their reasons. First, renewal of traffic between North and South, first time after the Korean war, is of high political importance and symbolism.

North Korean argue, that a real breakthrough in political relations between North and South and easing of tensions (which is nowhere in sight) should precede such a move. Second, North Koreans obviously have security concerns: traffic through North Korean railroads would mean, that large part of North Korean territory would become accessable to physical objects, originating from South Korea. That would mean additional reconnaissance possibilities, as well a complex set of problems, related to possible claims due to theft, accidents, etc. Additionally that would mean increased contacts between North and South railroad staff. The much-needed renovation of North Korean railroads would also mean the need to bring in foreign technicians and open up a large part of the country.

This concerns are in no way imaginary or easy to solve. However, North Koreans have recently become more curious about the idea and watch the developments closely. Its realization would mean enormous economic benefits for North Korea, that could overweigh the disadvantages. North Koreans have more than once shown (take as an example Kumgangsan tourist project, LWR construction in Sinpo), that they could be very flexible and pragmatic.

A long-term strategy is needed. First, North Korea should clearly see all the benefits of the project. At this stage the private sector contacts with the North are needed. Bringing in of R.O.K. government would inevitably politicize the project and ruin it. "Hanhwa" or a consortium of companies (preferably leaded by individuals of North Korean origin) should take the lead. In a later stage a private-level international body could be formed.

Russia, as an interested party, would welcome such developments and would actively participate in this activities.


4.Security and Confidence Building


in Korean Peninsula:


a Russian Point of View


G.Toloraya, Deputy Director-General,


First Asian Department, Ministry


of Foreign Affairs of Russia, Moscow


Russia is deeply involved in Korean affairs for more than a century and has well learnt a lesson that any subversion of stability in Korea is detrimental to its national interests. Based on our 55-year experience of relations with DPRK, as well as 10-year experience of relations with ROK we now see peace and stability in Korea as the primary objective of our policy in Northeast Asia. This rather banal notion leads to important practical implications.

The situation in Korean peninsula has shown some positive tendencies over the last year and a half, but one should not be deluged with excessive optimism. The huge ceberg of contradictions and mistrust has only shown first signs of melting. However, the fact the both Koreas by agreeing to inter-Korean summit have finally made a step to take their destiny in their own hands is of tremendous importance. This gives a whole new dimension to the Korean policies of all other countries concerned and signals the need to devise a new strategy.


* * *


There are two distintctive sets of security problems in Korea. The first, and most complicated one, is related to inter-Korean relations. This set of problems could only be resolved by the two Koreas themselves. The forthcoming summit in Pyongyang, whatever is the reason for it, is the epochal step in this direction (however, in 1991, the similar conciliatory steps by North Korea, frightened by the collapse of USSR, led nowhere).

The second set of problems, which cannot be solved solely by the efforts of both Koreas, relays to regional security and cooperation, where at least four major powers have their stakes. The issues of the pace and mode of inter-Korean reconciliation and eventual unification, implications of this process have direct bearing to the national interests, both security and economic, of Russia, China, USA, Japan, as well as other countries. And their positions and actions with regard to certain problems (such as US troops in South Korea, weapons of mass destruction issue, economic assistance to North Korea, security guarantees to DPRK etc.) are essential for a Korean solution.

That means that their positions and policies should be coordinated and adjusted. Any set-up in Korea and around it would be unstable if it does not take into account the lawful interests of the countries concerned. Therefore multilateral efforts for building up confidence and mutual trust in the area are as important as the inter-Korean dialogue itself for the final solution. The alternative is great power rivalry and competition, which has so many times in history become the root cause for Korean people's troubles. The idea of multilateral dialogue on these issues, long promoted by Russia, might be the adequate answer to this challenge.

The role of the "big four" as well as other countries is also important for fostering conditions for a fruitful inter-Korean dialogue and providing guarantees for the implementation of the agreements reached in its course.


* * *


International community should, together with two Koreas, find a suitable answer to the question of the future modus vivendi of two Koreas. A spontaneus, or even a hasty unification seems not to be a viable option for any of the parties concerned. That means that a prospect both Koreas and international community should accept as practical outlook for their policy is a long-term coexistence of two Korea states (regardless of the nature and characteristics of the North Korean statehood). The final goal, of course, remains to be gradual convergence and eventual reunitication, when both parties (notably, North Korea) are ready. The unification should take into account the interests of both parts of the divided nation and their ruling elites. However before this happens and to make it happen both Korean states must be given a chance for a free and sustained development and should be treated as equal partners, no matter how many disagreement and dissatisfaction one might have with North Korean internal and external policies. This seems to be the only civilized way to solve Korean problem in the context of building a new globalised world.

At the beginning of the new century no problems, if only minor economic challenges, could be hindering South Korea's march forward. However, the case of North Korea is different. It has become the weakening link of the system of international relations in the Far East, the stability of which has up until now rested on the stability of all its structural elements. That means, that helping North Korea survive and providing it with both security guarantees and the minimal subsistence level for its population is the key to stability in Korea. However it does not equal to freezing of the existing partition of Korea, conserving inter-Korean hostility and the miserable fate of North Korean population. A secure and self-assured, not cornered and desperate North Korea is a more reliable and forthcoming dialogue partner and this is a minimum condition for socio-economic progress of this closed society. In the long run a North Korea sure of its future would lead to more predictability, sustained inter-Korean dialogue and eventual reconciliation on the basis of peaceful coexistence as a preparatory stage for reunification.

Empirically the international community has already come to the conclusion that involving North Korea is much safer than containing it: assisting to survive is better than trying to conquer or enforce changes. The volumes of international assistance are quite impressive (it amounts to several hundreds million dollars annually). However, the final goals of this policy, thereotical approach to which is formulated in Perry's report, are still not transparent enough. The hope that North Korea would be lured into changes and eventually disintegrate is ill-founded, first of all because such a prospect seems to be the utmost concern of North Korean leadership, sharply criticizing "involvement policy" as aimed at "strangling the Republic" (DPRK). Even if successful, this strategy would only bring about the controllable collapse of DPRK and latent civil war, whatever the good wishes might be.

So if such a prospect is the genuine goal of this policy, wrapped in good wishes, it should be considered unrealistic. Either you should abandon this strategy altogether with the risk that abrupt cancellation of aid would lead to an uncontrollable collapse. Or you should be pragmatic enough to realize, that keeping DPRK afloat is in the interests of all parties concerned, but you would have to learn to live with North Korea system as it is for some time to come. Only if North Korean elite would feel itself secure from German-style unification, or a Yugoslav scenario, it could try to proceed to trying to solve the acute social problems of the country. Most probable solutions would lie in the framework of Chinese experience with certain North Korean specifics (p.e. creating a market-rule-based export sector while preserving centrally-controlled basic branches with mixed market-government-regulated relations in agriculture). In the long run DPRK would more and more resemble other still formally socialist Asian countries (China, Vietnam). At least the chances exist that the light in the end of the tunnel for the impoverished and exhausted country would finally appear. Only at this stage really meaningful dialogue between two Koreas as equal partners could bring some fruit.


* * *


What should be the strategy of international community for the above scenario?

1) Giving DPRK real security guarantees, which would at the same time make it SWMD potential redundant (this is the only sensible way to solve missile, nuclear, chemical, biological and similar problems). This would include of course recognition of DPRK by the West and R.O.K. with relevant treaties and agreements being duly signed. However, for DPRK papers are not enough. Pyongyang would need some hard evidence and guarantees (p.e. for R.O.K such a guarantee is the presence of US troops). China and Russia might play a role in providing such guarantees on multilateral basis.

2) Military and political security does not mean much without economic security. The urgent task is to prevent economic decline in North Korea - providing food and energy assistance. However, for a sustained growth a strategy for economic rehabilitation should be devised and implemented. The crucial sectors to the invested at the first stage (in some sectors, notably agriculture and atomic energy, the international projects are already underway - but they are out of the framework of a uniform economic strategy) are energy, transportation and food production. On further stages export-oriented industries, capitalizing on North Korean labour resources, should be developed.

A comprehensive economic strategy for North Korea could be worked out only together with North Korean authorities. Given the existing level of mistrust, confidence should be built up first. Participation of China and Russia, together with the West (including US, Japan, EC) and R.O.K. in jointly working out economic strategy could be an important confidence-building instrument for Pyongyang. IMF recipes would not work in North Korea, or would work only on trial and error basis.

3) For the foreseeable future R.O.K. would have to be the leading sponsor of economic rehabilitation of North Korea (especially of the export sector). Ideally its economic assistance should be channeled along the lines, drawn in the above-mentioned comprehensive strategy. Such a policy is also to South Korea's own benefit. (This economic burden should not be considered unjust, by the way, as without a hostile North Korea Seoul economic miracle of 1960-s-1970-s would have hardly happened in the first place). Economic development in the North should encompass deeper involvement of North Korea (first of all of the "open sector" of its economy) into international division of labour. Participation in the regional cooperation is the priority, which would also may make it necessary the creation of a multilateral non-political dialogue channels in Northeast Asia.


* * *


On the threshold of the new millennium it might be not too romantic to state, that confidence and security should be universal. That means they should apply to all the nation-states. Northeast Asia and Korean peninsula, which have for half a century been a laboratory of history for social systems competition, could well now become the test site for this approach, which is in its essence gradualistic. Destabilisation, collapses, crises, cataclysmes are the alternative. What would we choose?


5.RUSSIA - NORTH KOREA


A new Axis for multilateral structure


G.Toloraya


N.Korea was once a significant economic partner of Russia (then Soviet Union) in Northeast Asia: the trade peaked at 1,4 bln roubles (more than 2 bln US $) in 1987. USSR has provided economic and technical assistance in construction of 70odd key industrial objects in the neighboring country. Among them one can single out Songbong ("Syngri") oil cracking facility, Kim Chaek full-cycle steel plant, several power plants (in Pyongyang, Chongjin - Pukchan, Ungi) coal mining pits. Nampo non-ferous metal plant and aluminum producing plant in Pukchan, several chemical plants, electric appliances plants, textile factories etc. The construction of nuclear power plant was agreed upon in 1985 and some preparatory work (including locating the site and arranging field research) was accomplished.

Sure enough, these economic cooperation was far from being mutually profitable. The trade was based on clearing system, thus enabling DPRK to accumulate trade imbalance and unauthorized short-term trade debt. The latter was afterwards on a regular basis converted into longer-term state debt. Total debt, accumulated as a result of N.Korea receiving development loans (tied loans for industrial construction), loans to finance supply of military hardware and the above-mentioned loans for financing of trade imbalance amounted to 3,8 bln. rubles as of the beginning of the 90-s. The repayment of the debt was highly irregular and virtually stopped in 1990-s.

However, not all Russia's cooperation with this reclusive country was solely a one-sided one, based on the political considerations or "socialist internationalism". In 1980-s new forms of industrial micro-level cooperation were initiated - buy-back deals (p.e. truck batteries plant was erected), fabric was supplied to North Korea to be sewn into garments there and then to be re-exported to Russia. The use of North Korea workforce in Russian Far East although creating certain social and political problems, was also quite well economically motivated. The regional cooperation with the bordering Russian regions became a significant factor in satisfying N.Korean needs.

The dramatic changes in Russia created a situation, when almost all ties with North Korea were severed and North Korea was generally considered an "unacceptable" partner for newly privatized Russian companies whilst state-owned entities had no financial resources to continue traditional types of cooperation with this country. Economic crisis in North Korea (according to some estimates, its GNP was halved over last decade) along with turbulent reform period in Russia severely undermined practical possibilities for meaningful Russia - North Korea cooperation.

The two-way trade contracted 8-fold in 1992-1997: from US $ 600 mln. to US $ 75 mln. Russia's share in North Korea's overall external trade diminished to no more than 4-6%. Over half of to the trade (about 100 mln. dollars in 1999) is border trade with Russian Far East regions. North Korea export earnings to Russia ($ 20 mln.) are for more than 60% based on service sector exports: earnings of N.Korean workforce in the Russian Far East.

Investment cooperation has been terminated (in the 1990-s only a handful of Russian companies tried investing in N.Korean marine sector and mineral production). Scientific and technological cooperation, which has once significantly contributed to the creation of technological base in North Korea, has also come to a standstill.

Does all of the above means, that Russia should view North Korea as a kind of a "black hole" on the economic map of Northeast Asia and avoid taking this country into account for any long-term regional cooperation planning? That would have certainly been unwise for several reasons.

North Korea possesses a number of economic and locational advantages.

1. It is located in the center of a dynamic region, potentially offering the shortest route for land, marine and sea transportation and communication. Many major infrastructure projects in Northeast Asia, including multilateral ones, could be drastically reduced in cost by using this factor.

2. North Korea has a comparatively developed infrastructure (if only outdated and in need of modernization), and basic industrial structure in contrast with many Asian nations. Its physical, climatic and ecological conditions are suitable for industrial development with low-cost initial investment.

3. North Korea has a literate, disciplines and hard-working population with very low consumption level (cynically speaking, the decades of totalitarian dictatorship could become a blessing in disguise). At this point of time a large portion of it is unemployed, latently or openly.

4. Projecting into the future, the absence of any legislative and institutional base for market economy now can also turn into another blessing in disguise: a balanced and goal-oriented introduction of a new market mechanism in a concise and easily manageable economy would not probably encounter difficulties inherent to bigger economies (like Russia or China). The only problem is, whether a pragmatic and realistic economic rehabilitation strategy for the country could be worked out and implemented, provided its leadership allergy to foreign advises.

5. In contrast to other post-communist countries, North Korea has a ready investment source: South Korea, who's contribution to economic development of the country is already visible and will become increasingly so in the years to come (even in the absence of large-scale macroeconomic reforms, not to speak of an alternative scenario). Inter - Korean summit in June 2000 raised many hopes for a real breakthrough, changing economic situation in North Korea.

Last but not least is the political factor. Russia, as well as other regional and non-regional powers, cannot ignore a nation of 20 mln. people next to it threshold. The desperate economic situation the country is now can become a security threat.

Thus, bilateral Russia-North Korea economic cooperation should be promoted with the use of government regulation leverages, if purely private business-level contacts seem to be unattractive. Of course, that does not mean that Russia could return in any form to one-sided, "big-brother" type cooperation of the past. However, government support, both on federal and regional levels seems to be essential for implementation of several projects which in the long run would be profitable. Current political rapprochement (including unprecedented Russia - North Korean Summit) creates a favorable atmosphere for that.

Development of economic ties and involvement of North Korea into broader international cooperation are possible even under present static conditions, when no macroeconomic reforms in North Korea are in sight. It goes without saying, that eventual introduction of new economic mechanisms in North Korea even in limited scale (such as export oriented sector, free economic zones) could substantially broaden the possibilities for cooperation.

The comparative advantages of North Korea cheap workforce against the background of a lack of arable land. This factor is already widely used by regional authorities of Russia, who employ N.Korean workers in timber cutting, construction, agriculture, etc.

The prospective areas of cooperation include

- timber cutting and processing in Russian Far East (a new framework intergovernmental agreement was signed on 28.12.1999, based on which regional authorities conclude detailed contracts);

- energy sector, including coal mining in Russia (a joint venture in Yakutia is created), and an idea of supply of electricity from Russia in exchange for N.Korean workforce (taking into considerations difficulties in financial transaction with North Korea) is also worth mentioning;

- agriculture and fishery sector (North Koreans can take part in fish processing, cattle breeding, soy bean production in Far East, with South Korean financial investment into this projects highly desirable).

- export - oriented sector, including North Korean textile industry, where cooperation based on introduction of Russian-technology was quite significant in the 1980-s.

To "defreeze" economic cooperation, given even the presence of political will on both sides after the signing of the new basic friendship treaty in February 2000 and President V.Putin's visit to Pyongyang, at least one crucial problem should be solved: that of North Korean debt. It should be restructured (maybe according to modalities, relevant to that of Paris club), and if nobody really expects immediate North Korean payments in full, at last some kind of formal agreement should be reached.

Another important leverage - bringing in multilateratilism in Russia - North Korea cooperation. The most obvious third-party partners could be from South Korea, as well as Japan, China, probably other Western countries as well. Russia could provide some type of guarantees for their participation, as well as furnish its unique know how of dealing with North Koreans and the knowledge of microeconomic situation.

There is a score of projects, where multilateral cooperation could bring really important results.

- Most obvious is in railroad transportation. Arranging of railroad traffic from South Korea via North to Transsiberian railroad and then to Europe could be really beneficial. According to some estimates, a traffic volume of 5-7 mln. tons a year is quite possible. That would mean for South Korean (and probably Japanese and other Asian) consigners saving several hundreds million dollars a year, and for North Koreans additional transit revenue of at least $ 100 mln. a year and also additional transit revenues for Transsib. South Koreans have already designed at least four variants of connecting South and North Korean railways, (some of then provide for transit via China), and the project is high on agenda for Russia and both Koreas (although North is still doubtful). However, modernization of N.Korean railroads would be necessary; in that case South Korean capital could be joined with Russian equipment and technicians (which, it seems, would find it easier to get to North Korea than South Koreans).

- Renovation of industrial objects, once built with Soviet assistance. For example, if South Korea, as President Kim Due Jung declared in Berlin in March 2000 and afterwards, wishes to develop social overhead capital in the North, energy sector is the obvious priority. Instead of designing new power plants and power grids, an investment of around $ 20 mln. could be enough for swift competition of the project of construction of additional power units of Pyongyang thermoelectrical power plant, requested from Russia by North Koreans. Additional projects could include modernisation of other power stations in N.Korea (70% of the energy is produced on Soviet-built ones) and construction of East Pyongyang Thermal Power Plant. Some of Russian equipment supplies might be counted in offsetting Russian debt to South Korea. Russia could also participate in the operation of future "technoparks" in the North, as she could use its experience in "processing on comission" in textile industry.

Another idea - possible cooperation at Songbon oil refinery, which is almost idle now due to lack of oil supply. A South Korean (or a Japanese) company could make an arrangement with a Russian crude supplier to purchase oil products, which are to be produced from Russian oil at this plant. North Koreans would get a percentage of this products as payment in kind). Such a method could be also applied to Kim Chaek steel plant, other Soviet-built factories. Probably another challenging venture for Chung Ju-Young!

- Ways for Russia to cooperation with KEDO on LWR project could be found. For example, Russia could join on condition it would become a long-term supplier of nuclear fuel for LWR (as well as some periphery equipment), and these supplies could be accepted as its contribution to KEDO (of course, with the membership at the board). Russian debt to South Korea could also be used for KEDO contributions (Russian supplies to settle the debt to be counted as ROK contribution).

- In the long run a rehabilitation strategy for North Korea is to be worked out and implemented. It could include assistance in energy, agriculture, transportation at the first stage and creation of an export oriented sector, integrated into global economic flows, at the next stage. Russia could be a part of this efforts - both by participation of its experts (whom North Koreans would probably trust more, than Americans) and by taking part in joint projects.

- Scientific cooperation with North Korea on multilateral basic is also quite feasible. Russian scientists could jointly with North and South Korean colleagues develop long-term programs and concepts for: regional energy and transportation structure (a unified Korean energy and transportation system being part of it); unified marine resources development program; regional ecological program etc.

At the beginning of XXI century Korean peninsula like a century ago, seems once again to become a hub of politics of the world powers.

It should this time hopefully become a test-ground for a new regional model of cooperation in a stable and prosperous North-East Asia. Russia really wishes to play her active role in this new staying of the play. Multilateral approach is the key word for it.


Far Eastern Affairs, No. 5, 2000


6.A Newfound Old Partner in the Far East


Georgi Toloraya


Russian President Vladimir Putin's visit to North Korea was an international political sensation this past summer that perplexed many observers in Russia and abroad. Despite the fact that it became clear by the autumn that serious political processes were developing on the Korean Peninsula, in which it was necessary for Russia to participate, in the beginning, the Russian leader's visit to Pyongyang there were many "puzzled and dissatisfied people." Numerous comments were heard about the "suddenness" of this diplomatic act, its "subordination" to some ephemeral self-serving objectives (if only to the desire to undermine the implementation of America's ABM plans), and even that Russia was supposedly looking for new allies among the "rogue states" in the struggle for multi-polarity, and its abrupt turn toward North Korea was only the beginning of a new trend in Russian foreign policy.1 Some commentators, who are not particular erudite in political matters, believed the reason for the visit was associated with the mildly speaking, disappointing outcome of the Russian-American summit in Moscow at the beginning of June 2000 (in particular, on the topic of the US NABM system, one of the main justifications for which was the "North Korean missile threat"), or the visit by Kim Jong II, Chairman of the North Korean State Defense Committee, to Beijing in May 2000, after which Russia had to do something to "keep up."

We should probably agree that the timing and circumstances of the visit (before the G-8 summit on Okinawa) were chosen very auspiciously, giving a powerful public relations effect, which is just as important in diplomacy as in daily chores. The visit did indeed catch many people unawares, since it disproved several entrenched ideas and theories. First, the postulate that North Korea is a state in deep diplomatic isolation, with which "it is impossible to do business," incomprehensible, unpredictable, and, therefore, dangerous. Second, views about the insignificance of Russia's role on the Korean Peninsula because "the North Koreans do not want contacts with Moscow." Third, the visit provided a conception, as an alternative to the "stick and carrot" tactic, for stabilizing the situation on the Korean Peninsula, by ending Pyongyang's isolation and establishing equal cooperation without pressure or blackmail.

Nevertheless, there is nothing sensational in this development of events. The Russian-North Korean summit took rather a long time to come about, although physically it could unlikely have been held before May 2000, for example (before the inauguration of the new Russian president). If this step, embodied in the invigora-tion of Moscow's policy toward Korea, came as a surprise to anyone, it was not so to attentive observers who had been following the events in the region. To prove this, another look should be taken at recent history.

During the first half of the 1990s, Russian foreign policy was faced with a multitude of new challenges, against the background of which the Korean problem, although still important, lost its urgency. The situation of orchestrated tension in Korea, even if ti meant a potential security threat to Russia's Far Eastern f orders, was nothing compared to the really urgent challenges (ranging from Chechnya to Iraq and Yugoslavia), allowing for the fact many people in Moscow did not see North Korea's "nuclear missile threat" as posing the greatest danger to life on the planet, and even fewer serious-minded people believed in the imminent collapse of North Korea. Russia, contrary to the widespread opinion in the West, has in practice retained potential levers to influence the Korean situation (military aid, for example), but has not resorted to them, since the situation, from the Russian point of view, that is, perceived through the prism of Russian national interests, did not call for this. Of course, on the emotional level, Russia's exclusion from the talks on the Korean problem according to the "two plus two" formula aroused a negative reaction in Moscow, but these talks turned out to be ineffectual in practice and Russia's non-participation in them at least saved it from the vexation of having wasted its efforts. Nor was Russia's non-participation in the KEDO (Korean Energy Development Organization, which is building a nuclear power plant in North Korea) any great loss. The political goals of this organization ("involvement" of North Korea) are not that important for Russia, and from the economic point of view, KEDO is facing constant problems (there is no guarantee that the deal will not end in a complete fiasco), which Russia is not in a position to resolve or take responsibility for (especially since KEDO turned down right away Russian reactors for the nuclear power plant).

Of course, it must be admitted that along with Russia's waning attention to Korean affairs, its opportunity to influence the situation in Korea has also faded, whereas the United State's role on the Peninsula has shot up abruptly. If asked about the reasons for this situation, it must be admitted that Moscow's potential on the Korean Peninsula drastically diminished not only due to the overall weakening of Russia's international position's, but also because the Soviet Union failed to make the best use of its long-standing relations with Pyongyang during the last few years of its existence.

The logic normalization of relations with Seoul at the end of the 1980s should not have been accompanied by a de facto complete break with Pyongyang, despite all the ideological differences between the two countries. These differences did not stop the US several years later from entering into a direct dialogue with the North Koreans. Russia, on the other hand, should have learned a lesson from the more than century-long history of involvement in Korean affairs: everything going on in that country has a direct effect on Russia's national interests, and, therefore, destabilization of the situation in Korea should not be tolerated, regardless of what we think about the system in North Korea. Particularly since judgments on the aggressiveness and "threat" of North Korea under current geopolitical conditions clearly tend to be biased. Unfortunately, the North Koreans are difficult partners, and superficial acquaintance with Korean affairs frequently brought non-professionals to hasty, but not necessarily correct conclusions.

Maintaining peace and stability on the peninsula is still Russia's top priority in this region. Of course, we are in favor of a peaceful unification of Korea, from which Russia should get a prosperous neighbor and friendly partner, but resolution of this problem, in the final analysis, is primarily the affair of the Korean people themselves. Russia does not have any particular need to directly interfere in this process, since it does not threaten our practical interests, rather on the contrary. Russia's role in it boils down to well-intentioned support and constructive promotion of inter-Korean reconciliation and reduction of tensions in relations between the two Korean states. As the many years of experience show, the role of an intermediary in Korean affairs is unappreciated and ineffective. It is in Russia's interests to develop good-neighborly mutually beneficial cooperation with the Korean people as a whole, with a nation that does not have any ill feelings toward Russia, since we have never fought each other.

Can all the above-mentioned goals be achieved without normal, good-neighborly relations with each of the Korean states? Taking into account that after an extremely effective start, relations with South Korea in the 1990s developed constructively and steadily (although not without problems), from the pragmatic point of view it became necessary, and this was clear to any unbiased person, to fasten the "loose end," that is, sort out relations with the North, no matter what Russia thought of the political and economic system in that country. That country and its residents are our close neighbors, and Russia simply cannot, and should not, ignore more than 20 million people on its own doorsteps. Apart from being in Russia's own national interests, normalization of relations with North Korea is also of vital importance from the point of view of regional security. Isolation of North Korea, its weakening and degradation, and moreover a system crisis, could be a serious threat to the region. All the regional players are essentially interested in the stable development and progress of North Korea; however, Russia is best placed to make the most significant contribution to this since the second half of the 1990s.

Restoring North Korea's trust in Russia cannot be called an easy task. Since the end of the 1980s, Pyongyang has been following the reforms in Russia with great apprehension, seeing in them a threat to the existing system in North Korea and worrying about the influence and, moreover, the transplantation of "Russian experience" onto Korean soil. In contrast to other former socialist countries, this scenario would be absolutely unacceptable to the North Korean leadership, since it would mean a loss of power and rapid and inevitable assimilation of the republic by its "enemies." This is why, at the beginning of the 1990s, North Korea, as we see it, perceived Russia (although serious-minded specialists in our country never shared the theories about the rapid collapse of North Korea) as more of a hostile, or at least an unfriendly, state, "traitors of the socialist cause." It required time and goal-oriented diplomatic efforts to make Pyongyang realize that Russia was genuinely interested in peace and stability on the Korean Peninsula, which was impossible without stable development of North Korea itself and without establishing normal and correct relations with Moscow.

The two countries began a rapprochement in the middle of the 1990s, when the importance of developing balanced relations with both Koreas was announced at various official levels in Russia, and Pyongyang no longer feared Moscow's practice of coordinating its anti-North Korean acts with the US and other Western countries (although an exchange of opinions and our influence on the Korea policy of other countries had even intensified). In the autumn of 1994, the North Korean leadership changed its attitude toward Russia as a hostile state and began to see it as a "friendly country," with which it was willing to develop relations, regardless of differences in ideology and social systems.2

The rapprochement process became particularly active beginning in 1998. I would like to emphasis that this was when North Korean policy began to undergo changes, which the whole world did not notice until North Korea's "diplomatic offensive" at the end of 1999 and beginning of 2000. As we understand, it was by no means accidental that the North Koreans chose Russia as their test case. On the one hand, the fact that Russia was a familiar, traditional partner played its role and, on the other, the fact that Russia is a member of the UN Security Council, and a member of the G-8, that is, an authoritative country wnich is quite capable ot helping North Korea to achieve greater understanding of its problems in the world community.

It seems to us that it was in mid-1998 that the North Koreans made a choice in favor of restoring and normalizing relations insisted on by the Russian side since the mid-1990s, although it appears that there were both supporters and opponents of this choice in Pyongyang.

This turn was outwardly manifested-during the diplomatic consultations in the autumn of 1998, which at that time were essentially the only remaining channel of interstate communication. The North Korean side suddenly demonstrated a perceptibly constructive approach to the negotiations on a new basic interstate treaty (we know that as early as 1996, the sides agreed that the former alliance treaty of 1961 had exhausted itself and a new one was to be drawn up). In the autumn of 1998, the round of negotiations was so successful that the question of initialing and subsequent signing of the treaty was raised. As the result of a trip to Pyongyang in March 1999 by Russian Deputy Foreign Minister G.B. Karasin, the text was fully approved and initialed. Russia and North Korea had reached a turning point in their relations. This was also promoted by foreign and domestic factors, in particular, the shift of Kim Dae Jung's new South Korean administration, not in word, but in deed, to a policy of reconciliation and cooperation with the North, several positive changes in relations between North Korea and the US, and the urgency of economic problems in North Korea.

However, at that particular moment, the sides were possibly still not ready for a breakthrough. North Korea was only beginning to develop its "foreign policy offensive," which led, during the first half of 2000, to its diplomatic recognition by several countries. Russia, on the other hand, had entered a difficult period of election and military campaigns. The postponement of the Russian foreign minister's visit to Pyongyang scheduled for May and June 1999 (both due to the fact the Korean hosts were busy organizing a visit to Beijing by Kim Jon Nam, Chairman of the Supreme People's Assembly Presidium, and because of the Russian-South Korean summit in Moscow) was, on the whole, to the benefit of both sides. It was as though the sides had taken a time-out (even though unintentional), which allowed them to calmly analyze their possibilities and tasks, the prospects and limits of imminent rapprochement, and again probe each other's positions. A certain role in this was played by "quiet diplomacy," in particular, unofficial visits to Moscow, including in transit, by Kim Jon Nam, the constitutional head of the North Korean state, (as North Korea's foreign minister for many years, he has accumulated a vast amount of international experience) and other North Korean leaders.

President Vladimir Putin's coming to power in Russia, and the new pragmatism and dynamism of Russian foreign policy, which placed top priority on protecting national interests, could not help but add new, positive changes to the situation. The increase in independence in Russia's foreign policy clearly inspired Pyongyang. In particular, the fact that Russia's foreign policy conception stipulated a striving for multi-polarity was clearly in keeping with both the ideological precepts of North Korea and its direct practical political goals to strengthen its position in the difficult standoff with the US, for which it needed the support of a Russian "rear."

North Korea shares Russia's attitudes towards issues that are important to it, such as ABM, the central role of the UN, the non-enlargement of NATO, and others. Pyongyang could not fail to notice the strengthening of ties between Russian and China, which is North Korea's essentially the only remaining major political ally. All of this ensured the possibility, despite the ideological differences and disagreements on several major issues, to cooperate not only bilaterally, but also on the international arena. What is more, the possibility that Russia can render the North Koreans real assistance in overcoming the diplomatic blockade is of great importance, not only meeting the interests of North Korea itself, but also strengthening security in the region.

All of the above-mentioned factors taken together made Russian Foreign Minister I.S. Ivanov's visit to Pyongyang not simply a success, but the beginning of a new stage in diplomatic relations. Whereas the last visit by a Russian foreign minister (E.A. Shevard-nadze in 1990) meant the end of the stage of "socialist internationalism," I.S. Ivanov's visit in February 2000 symbolized a transition of the changes that have accumulated over recent years to a qualitatively new level.

The new treaty on friendship, good-neighborly relations and cooperation signed on February 9, 2000 became a political and juridical symbol and formal basis for the new system of bilateral relations. It is vastly important that the treaty was based on the desire to respect the goals and principles of the UN Charter, the commonly accepted norms of international law, ensuring peace and security in Northeast Asia, and not aimed against the interests of third countries.3 This was the first time that a document containing such formulations and obligations had appeared in the diplomatic history of North Korea, and the fact that the republic signed it under these accepted international principles is largely to Russia's credit. The treaty envisages a mechanism of regular consultations, immediately notifying each other in the event of aggression against one of them or a situation threatening peace and security (this is essentially a mild form of political guarantee of security). It envisages rapid elimination of the split between the two Koreas and unification based on the principles of independence, peaceful unification and national consolidation (these principles, which were coordinated by the North and South on July 4, 1972, were also confirmed by the leaders of the North and South during the historical inter-Korean summit in June 2000).4

Thus, the treaty became not only a contemporary legal base for the entire range of Russian-North Korean relations, but also a kind of "declaration of intentions" of both countries in their policies, this being the first of its kind for North Korea in the latest period of its diplomatic history.

It is not surprising that Russia played the role of icebreaker, releasing North Korea from its diplomatic isolation. Our country plays a special part on the Korean Peninsula. History cannot be rewritten, the North Korean state was created within the framework of the Soviet paradigm, and, therefore, its political system, decision-making mechanism and administrative features are viewed with much greater understanding in Moscow than in Washington, for example. Of course, our North Korean partners are well aware of this, for whom emerging from the state of mutual alienation, as also in our country, was clearly perceived with relief. The long traditions of communication and interaction were reflected to a certain extent in this.

Signing the treaty and renewing the political dialogue between our countries created conditions for a comprehensive increase in cooperation, including the possibility for establishing contacts on the highest level. But, as often happens in summit diplomacy, realization of this possibility can take rather a long time. The initiative of the Russian side and a lucky coincidence of events helped the Russian-North Korean summit to take place without delays and to yield maximum possible results.

The announcement in April 2000 on an unprecedented inter-Korean summit, which drew the entire world's attention to the Korean Peninsula, played a definite role in the adoption of the necessary decision in Moscow. The time had come for Russia to have a positive influence on the Korean situation, to promote the processes of inter-Korean rapprochement and improvement of the situation, while taking into account its national interests. The opportunity had come to correct the hypertrophied assessments of the danger of the North Korean missile program, and, therefore, to counter the serious arguments of those in favor of developing the US NABM system. The trip to Pyangyang right before the Asian G-8 summit on Okinawa was also extremely opportune from the point of view of stimulating Russia's Asian policy as a whole, thus demonstrating its attention to Asia's urgent problems and being appropriately incorporated into the Russian leader's itinerary.

Thanks to the confidence-building contacts with North-Korean partners at the beginning of May 2000, the Russian President was sent an official invitation from North Korea's leader, Kim Jong Il, which was incidentally the first of its kind in North Korean history. Preparations for the visit were made with emphasis primarily on its political aspect, taking into account the fact that the visit was the first trip in history by a Russian leader to Pyongyang and, therefore, a breakthrough in the relations between the two neighbors. On the whole, many aspects of the visit were firsts, it was the first visit by a foreign leader on Kim Jong Il's personal invitation, the first official negotiations with him at the summit level in Pyongyang since he came to power (aside from the inter-Korean summit), and the first international document signed by the North Korean leader.

A great deal was written in the press about the protocol part of the visit, and we can only add that Pyongyang had not witnessed such a warm meeting for a long time.5 The details are profoundly symbolic. For example, Kim Jong Il not only met and saw off the Russian President as he stepped off and boarded the airliner, but also laid a wreath with him at the monument to Soviet soldiers killed during the liberation of Korea in 1945. It was a way of associating current events with traditions sealed by the blood of military friendship. The leaders of both countries spent more than seven hours together and not only discussed a wide range of problems of bilateral relations and international affairs, but also significantly deepened their mutual understanding and established a trusting relationship aimed at the future. Kim Jong Il was pleased to accept Putin's invitation to make a return visit to Russia. We will add that after the summit, the two leaders have been exchanging messages with each other.

In the joint declaration signed on the results of the summit,6 the leaders of the two countries again noted the principles of mutual communication set forth in the bilateral interstate treaty, which are in keeping not only with the vital interests of both countries, but also with the existing trends toward a multi-polar world and creation of a new, rational international order," called on to ensure "reliable security of all countries in the political, military, economic, socio-cultural, and other spheres." Special emphasis was placed on the importance of reinforcing the role of the UN with the intention of interacting within its framework, and both countries stressed their resolute rejection of the practice of interfering in the internal affairs of other states. The sides spoke in favor of reducing coercion in international relations, and condemned international terrorism and separatism. Thus, both countries expressed their mutual assessments and concerns regarding the major problems of the current international situation important to them.

The Russian side particularly valued North Korea's support for Russia's efforts to strengthen strategic and regional stability, including retaining the ABM Treaty of 1972, fulfillment of the START 2 Treaty, and urgent signing of the START 3 Treaty, expressed in the declaration. Foreign observers paid special attention to the statement that "references to the so-called missile threat from some states as justification for reviewing the ABM Treaty of 1972 are completely unsubstantiated," in regard to which North Korea officially announced for the first time that "its missile program does not threaten anyone and is for strictly peaceful means" (the latter formulation was ultimately agreed upon personally by the heads of state at talks with a small group of participants). In this context, Kim Jong II stated that if any state concerned about the DPRK missile program agreed to launch two or three satellites for North Korean every year without charge, North Korea would not need its own missiles for launching satellites into orbit. With the consent of the Korean leader, Vladimir Putin notified society and the political officials of concerned states about this idea. Voicing and subsequent discussion of this initiative aroused animated commentary throughout the world, since a real opportunity had opened up for solving the missile knot problem and further strengthening security in the region.

It should be admitted that discussion of this subject in the world press was not always well-disposed. With reference to a meeting between Kim Jong II and. South Korean correspondents on August 12, 2000, several western mass media circulated a report that Kim Jong II said this supposedly "as a joke."7 In fact, Kim Jong II essentially confirmed at this meeting an idea that he expressed earlier when he stated (cited from material from the Republic of Korea press): "I told Russian President Vladimir Putin that we will not develop missiles if the US agrees to launch our satellites for us."8 We can judge just how serious the conversation with Vladimir Putin was on this subject (and it took place during the official negotiations among a small group of participants) from the fact that Kim Jong II even suggested including this idea in the Joint Russian-Korean Declaration. When mentioning the "joking" context of the discussion, the North Korean leader probably meant the irony which was indeed expressed by both leaders about how difficult it was for people most concerned about North Korea's missile program to take this proposal seriously. The episode with the insinuations by the press is precisely a case in point. Moreover, the approach of the US administration, which expressed its willingness to consider the possibility of launching North Korean satellites in exchange for an end to its development of long-range ballistic missiles, shows that this move by the North Korean leader was taken seriously in Washington's corridors of power.9

North Korea values Russia's support, as set forth in the declaration, of the North Korea's efforts to resolve the reunification problem independently with the Korean nation and not to permit outside interference in this process. Russia and North Korea agreed to cooperate in turning Northeast Asia into a zone of peace, good-neighborly relations, stability and equal international cooperation, and in this context expressed their intention to make a worthy contribution to the Regional ASEAN Forum (which North Korea officially joined a few days later, also due to Russia's support).

Of course, one brief visit after such a long period of limited contacts cannot immediately resolve all the problems involved in restoring bilateral relations. Moreover, it is understandable that the severe economic crisis in the North and the limited, to put it mildly, opportunities for Russia, still continuing its own reforms to render economic aid to North Korea are making a dramatic upsurge in economic cooperation extremely difficult. Nevertheless, these problems (including issues touched upon during the visit) are at least being discussed. The intergovernmental commission on economic, trade, scientific and technological cooperation has been entrusted with stepping up development of major cooperation projects in the metal industry, transportation, forestry, the oil, gas, light and other industries. It was also decided to give special attention to modernizing enterprises built with Soviet technical assistance. The matter may specifically concern completing construction of the East Pyongyang heat and power plant and expanding the Pyongyang heat and power plant, as well as possible cooperation in establishing production at the Kim Chak metal plant, allotting the Korean side new territories in Russia for the lumber business, and processing oil at the Synni oil refinery in Sonbon (providing its capacities are restored).

It is understood that implementation of these projects will depend on the financing sources. The Russian side still does not have the opportunity to provide credits, and the Korean side is well aware of this. Moreover, the problem of North Korea's debts from Soviet times must still be settled (obviously by restructuring), which amount to 3.8 billion converted rubles in 1991 prices, and was also discussed during the Russian-North Korean summit.

Russia obviously needs to join forces with other members of the world community interested in the stable development of North Korea in order to implement the above-mentioned projects and others. This cooperation (it is customary to call it trilateral, keeping in mind primarily the participation of South Korea, but in practice we can also talk of the participation of Japan, China, the EU, the US, and international financial institutions) appears extremely promising and mutually advantageous. As the talks in Pyongyang showed, the North Koreans are essentially ready to accept this approach to. Particular attention was given to the project for restoring trans-Korean railroad traffic and organizing the transit of freight from South Korea along the Trans-Siberian Railroad in Russia. North and South Korea later agreed to reopen railroad traffic, and the Russian side intends to give priority attention to this project.10

There was also talk about cooperation in the humanitarian sphere, for example, the North Koreans are interested in renewing Russian language textbooks for college and school students in North Korea. There is also the possibility of restoring student exchanges and other forms of cooperation in the area of science and education, culture, health care, social security, law, environmental protection, tourism, sport, etc. For the first time in many years, contacts have also been established with the North Korean military, which is also important from the political point of view, taking into account the role it plays in North Korean society. The restoration of contacts in this direction will also help to equalize the military balance on the Korean Peninsula (which has not been in North Korea's favor during the past few years), and this means strengthening stability and improving security.

By bringing its relations with North Korea out of stagnation, Russia is by no means striving for an "equal distance" from the North and the South, does not intend to infringe on anyone's legitimate interests, to "oust" anyone from the Korean and regional processes, to build any "triangles," etc. Our goals are transparent and fully in keeping with the goals of the other regional players. We suggest achieving these goals along with all the countries interested in the peace, stability and prosperity of the countries on the Korean Peninsula.


1. See: Segodnia, June 20, 2000; Izvestia, June 10, 2000; International Herald Tribune, June 10, 2000; Korea Times, June 10, 2000, etc.

2. Panov, A.N., "Speech at the Opening of the Fourth International WEIR-IFANS Conference," Moscow, October 1994.

3. Far Eastern Affairs, No. 2, 2000, pp. 8-9.

4. Choson Ilbo, June 15, 2000.

5. Reports by ITAR-TASS from Pyongyang; Vremya Novostei, July 20, 2000.

6. Report by ITAR-TASS (Atlas), July 20, 2000.

7. Report by Reuters, June 14, 2000; Segodnia, August 15, 2000.

8. Korea Times, August 14, 2000.

9. Vremya Novostei, August 31, 2000; Report by ITAR-TASS, September 1, 2000.

10. Korea Herald, July 30, 2000.


7. Russia and South Korea:


Some Thoughts on the First Decade of Relations


Georgi Bulichev and Dmitry Kulkin


Ten years ago, on September 30, 1990, an agreement was signed in New York on establishing diplomatic relations between the former Soviet Union and the Republic of Korea. In the whirlwind of changes that encompassed our country the entire drama of this extraordinary event was forgotten somewhat: the Soviet Union officially rounded off the last conflict of the Cold War in which it participated, recognized the political realities and came out for full-blooded, undistorted by "class solidarity" with the North Koreans, participation in the affairs of the Korean Peninsula and Northeast Asia.

During the past decade South Korea ceased to be terra incognita for Russia. Many Russians have been there as tourists or on shopping sprees, the names of South Korean companies - the manufacturers of electronic and electrotechnical equipment, cars and clothing -- have become household words, and everyone remembers the Seoul Olympics in 1988, which opened up this country for us. This is all normal and very satisfactory. But has everything that Moscow and Seoul dreamed of come true and what lessons can we glean from the past ten years?

In order to answer these questions we must recall some of the events that preceded the settlement of diplomatic relations.

During the 1970s-1980s the South Korean administrations of Park Chung Hee and Chun Doo Hwan made several offers to establish contacts with the Soviet Union and develop trade and economic relations. But the USSR did not develop any relations with Seoul, limited itself to a small amount of trade though intermediary third countries and in exceptional cases allowed South Korean delegations to come to forums held in our country by international organizations. On the whole, this was dictated by the desire not to affront the dignity of the DPRK, which was categorically against any contact with Western "puppets", although by that time there were many people in Moscow, particularly in the academic milieu, hwo doubted the expediency and long-term prospects for such an inflexible approach.

A turning point in the rapprochement with South Korea was Soviet President Mikhail Gorbachev's speech in Krasnoyarsk in September 1988.1 Under pressure from the liberal members of the Soviet establishment and scientists this speech included a revolutionary idea about South Korea, which essentially laid the foundation for a radical review of Soviet policy towards Korea. "It is thought," said Gorbachev, "in the context of the overall improvement in the situation on the Korean Peninsula that opportunities may open up for establishing economic ties with South Korea." This statement was evaluated positively both by the Seoul administration, which discussed the Kransoyarsk speech at a special government meeting, and by the leaders of the main opposition parties of the Republic of Korea. On the whole, the government circles of South Korea reacted positively to the proposal made by Gorbachev to hold a multilateral discussion on reducing military opposition in regions adjacent to the coasts of the Soviet Union, China, Japan, the DPRK and South Korea.

The review of Soviet policy towards the Republic of Korea facilitated the accelerated development of bilateral relations along non-governmental lines. This included the development of direct trade ties, the liberalization of the visa system between the two countries, a commercial agreement between Soviet and South Korean airline companies and the opening of sea routes and telephone communication. A major event was the opening in April 1989 of the first official representative agencies -- the Chamber of Commerce and Industry in Seoul and KOTRA (in July) in Moscow. Later consular departments were set up under them.2

Despite the tendency towards expanding bilateral economic relations the South Korean side manifested caution in its approach to developing contacts with the Soviet Union in this sphere, referring to the absence of interstate relations and the inability to obtain government guarantees for economic transactions. This was in fact a form of pressure on the Soviet government to make relations official as quickly as possible. In addition, the US managed to persuade the South Korean government to prohibit the export to the Soviet Union of several "strategic goods".

Mutual official recognition between the Soviet Union and the Republic of Korea began when Mikhail Gorbachev met with President Roh Tae Woo in San Francisco in June 1990, which was organized by the efforts of several progressive officials in the Soviet upper echelons.3

Under pressure from the South Korean side the first negotiations were held in August 1990 between Soviet and South Korean government delegations on the development of mutually beneficial economic collaboration. The South Korean side conjured up impressive prospects for cooperation. South Korea also hinted might be able to render economic assistance to the Soviet economy. Under the influence of these assurances the then foreign minister, Eduard Shevardnadze, achieved early diplomatic recognition of Seoul on September 30, 1990 (it was originally scheduled for January 1, 1991).4

Our policy toward South Korea did not meet with understanding in North Korea and was subjected to open criticism. Nevertheless, Pyongyang had to begrudgingly agree that the development of Soviet-South Korean relations was irreversible. Roh Tae Woo's visit to Moscow in December 1990 and the signing of the Moscow Declaration did not arouse any particular emotions in Pyongyang.5

But the fact that the Soviet Union ignored South Korea for such a long time damaged its prestige as a superpower, weakened its position in the APR and actually removed it from taking an active part in the Korean settlement process, in which Moscow was left with the role of supporting North Korean initiatives. The weakness of the Soviet position in the Korean question was manifested in the fact that the USSR did not recognize the presence of two states on the Korean Peninsula for a long time, whereas by the mid-1980s they had achieved rather broad diplomatic recognition throughout the rest of the world. By that time, the DPRK and South Korea maintained diplomatic relations with more than 100 countries and had the status of Permanent Observer in the UN. Both Koreas were represented as full members of almost 20 international organizations.

In our opinion, the choice in favour of establishing diplomatic relations with South Korea should have been made earlier, say, right after President Roh Tae Woo came to power by more or less democratic means in 1987, or at least during the Seoul Olympics in 1988. Time was lost, and the Soviet Union did not take advantage of all the benefits it could have achieved from normalizing relations with the Republic of Korea.

By the beginning of the 1990s universal support of only the North Korean vision of reunification meant refusal to recognize the existence of two Korean states and continuation of a deliberately dead-end policy. The policy of gradually moving towards establishing broad economic, political and cultural ties with South Korea, including mutual recognition, while preserving and developing cooperation with North Korea, was essentially not implemented, in part due to the growing anarchy within the Soviet state administration. This led to extremely negative consequences. Moscow had less opportunity to influence the situation on the Korean Peninsula because of a severe deterioration in relations with the DPRK and owing to the fact that Moscow's policy towards Seoul was "reactive" at first, which made South Korea believe this policy might be brought under its dictatorship. It required time and a lot of "head-banging" for relations to become truly mutually respectful and even.

It is no secret that by establishing diplomatic relations with South Korea in 1990, the Soviet Union was pursuing two goals. First, saturation of the consumer market, which was barren at that time, and attraction of investments and, second, reinforcement of its role in Northeast Asia by maintaining relations with the DPRK and developing partnership with the South.

In both directions the results were rather limited. It seemed at first that South Korea viewed its relations with our country mainly through the prism of the inter-Korean confrontation. For the South, Russia presented a good way to put pressure on the DPRK. Seoul undertook a whole series of such attempts in order to vex its northern opponent. The South exaggerated the topic of the Korean war, trying to get Russia to condemn the aggression of the North. Numerous anti-North Korean statements were made on the problems of human rights violations "in the camps in the Far East", where the labour of North Korean lumberjacks was used. South Korea tried to force upon Moscow a line of conduct regarding the "DPRK's nuclear problem" and persuade it to put greater pressure on North Korea, and also attempted to get the Russian leadership to dissolve its alliance treaty with Pyongyang.

Encountering a multitude of attacks on it in several Russian mass media and in the speeches of certain politicians and officials, the leaders of North Korea actually believed that Russia was blindly following the South's lead. The irony was that later, when relations between Russia and the DPRK really did deteriorate, our country, on the initiative of Seoul and Washington, was excluded from settlement of the North Korean nuclear problem in 1993-1994 and then from the quadrilateral negotiations proposed in 1996. References were made to the fact that the former Soviet Union was involved in building up the North's nuclear arms, and training and sending highly qualified specialists to the DPRK, as well as to the fact that Moscow had no levers of pressure on Pyongyang, since relations with it were "frozen," in many respects thanks to Seoul's efforts.

During South Korean President Kim Young Sam's visit to Moscow in 1994 the Republic of Korea essentially gained once more all that it wanted from us. Despite preliminary specifications the phrase "sanctions against the DPRK" slipped from Boris Yeltsin's lips. According to a statement by Andrei Kozyrev, Russian foreign minister at that time, "the conference on the Korean Peninsula attended by South Korea, North Korea, Russia, the US, China, Japan, as well as representatives from the UN and IAEA is the latest technique for influencing North Korea, and if it fails, Moscow will unequivocally support the idea of sanctions, but will first try to reason with this country and make it give up its plans."6 When discussing the alliance treaty with the DPRK, Kim Young Sam also largely succeeded in bringing the Russian President around to his way of thinking. It was decided that even if it were not cancelled, it would at least not be extended for another term.

Seoul also went on to try and achieve Moscow's support in preventing the dumping of Taiwanese nuclear wastes in the north of the Korean Peninsula. The South Koreans discussed this particularly persistently before Evgeny Primakov's visit to Seoul All of these anti-North Korean thrusts aroused growing irritation in Moscow.

Nor was the situation in the economic sphere without hitches. As promised, South Korea offered a three billion credit to the Soviet Union, but after its collapse payments were unilaterally frozen by Seoul. The problem of Russia's debt to South Korea became a headache which has lasted for many years, and another excuse for curbing economic ties. Admittedly, trade grew, mainly due to the export of Korean consumer goods to Russia and "gray" imports thanks to "shuttle trade", whereas Russian exports to South Korea remained limited (as a consequence, among other things, of the protectionist measures by the South Korean side with respect to Russian steel and fertilizers). The 1997-1998 crisis in South Korea and the 1998 economic crash in Russia led to a sharp drop in goods turnover from $3.3 billion to $2.1 billion.7 True, by 2000 growth trends were restored.

The total volumes of South Korean investment in the Russian economy are still small, the projects implemented are on average insignificant in scale and investments in the production sphere are relatively low. Korean businesspeople largely have a passive attitude towards carrying out large-scale long-term investments in Russia. They consider the main factors hindering this process to be the political and economic instability in our country (frequent changes in government, conflicts between the federal and regional authorities, unstable prices, fluctuations in hard currency exchange rates, crime, etc.). During the financial currency crisis such fears became even more acute. Conducting business activity in Russia was assessed as even more difficult due to the deterioration in the state of the financial sphere and the possibility of non-payments, as well as the toughening up of currency control and other factors. South Korean businesspeople also say that other reasons for their passive attitude towards Russia are the absence of exhaustive information and insufficient understanding of its economic situation.

We would like to note that the Republic of Korea and Russia began their economic exchange ten years ago when everything the Koreans knew about us was based on indirect and superficial experience. Therefore, under the conditions of insufficient real experience and information, the unfavourable business climate in Russia and flagrant crime, there was essentially nothing to rely on apart from short-term investments and speculative transactions on the stock market.

Over time Moscow began to see that the South mainly needed the multitude of political contacts, and even summit meetings, where every aspect of bilateral collaboration was discussed, including economic, with its "promising" prospects, to influence Pyongyang with the Kremlin's aid. Moscow no longer wanted to play such games, which made Seoul immediately begin talking about a "cooling off" in relations. In Russia, on the other hand, the opinion became popular, including, and perhaps primarily, among academic circles, that the policy towards the Korean Peninsula should be changed from "pro-South Korean" to a balanced one in which relations with Seoul and Pyongyang were developed independently of each other and as their real potential permitted. Seoul had a rather nervous reaction to this approach (it was called "equidistance"), considering it a defeat and loss in its struggle for domination on the Korean Peninsula. The culmination of this perception was the "spy scandal" in the summer of 1998 (again on "anti-North Korean" ground), in which a Russian diplomat suffered. This not particularly significant episode became almost a national disaster in Seoul where it was perceived as "humiliation" of South Korea, its "defeat", and evidence of Moscow's almost complete shift to a pro-North Korean stance.

But every cloud has a silver lining. Kim Dae Jung's administration had a good excuse to free itself from the heritage of the past in its relations with Russia, when these were used only as a way to oppose Pyongyang. This forced South Korea and Russia to dramatically restructure their relationship.

President Kim Dae Jung succeeded in taking a wiser and more balanced approach to Russian-South Korean relations. This was manifested during his visit to Moscow in May 1999, when Seoul sought to achieve a "sunshine policy" towards Pyongyang with our support. As we know, the spirit and philosophy of the "sunshine policy" is welcomed in Russia, since it is the most sensible and realistic approach to inter-Korean relations. The DPRK, however, saw a "double bottom" in it - the desire to undermine its system using the policy of "involvement" -- and likened this course to the US policy towards the Soviet Union, which led to its collapse. Russian representatives managed to convince Seoul that in order to make its policy lucrative it had to win North Korea's trust, and this could not be done on the basis of declarations and gestures alone. Meanwhile, the first steps have not yet been taken to establish diplomatic relations between the US and Japan and the DPRK, which in international practice means at least acknowledging that a state exists.

It is a gratifying sign that Seoul has begun listening to such arguments and taking into account the Russian point of view and Russian interests. This gave a new impulse to Russian-South Korean relations. At the same time, Seoul is taking a more balanced and calm approach to its relations with North Korea. According to the logic of Kim Dae Jung's predecessors, "the friends of my enemies are not my friends," which often caused misunderstanding.

Reducing the confrontational fervour of inter-Korean relations removes this irritant. Seoul has understood that South Korea and Russia need each other. Russia is the political guarantor of the situation on the peninsula and a potentially important market for Korea. The Korean Peninsula is a zone of historical attention for Russia. Any unorthodox situation there immediately reflects on the Far East region. Now, even the South Koreans themselves admit that Seoul underestimated Russia's potential in resolving the problems on the Korean Peninsula.

Filling with real content the constructive reciprocal partnership relations set forth in the basic treaty signed by Russia and the Republic of Korea in 1992 obviously presupposes that Russia should become more actively involved in settling the Korean problem. It seems that the current leadership in the South understands this: it put forward the idea of six countries (both Koreas, China, the US, Japan and Russia) adopting a "Joint Declaration for Peace and Stability in Northeast Asia". This point of view coincides with the Russian initiative to convene a multilateral conference on Korea.

As of today, Russian-South Korean relations are those of constructive reciprocal partnership, as set forth in corresponding bilateral documents.8 The political dialogue is extremely active, which among the Asian countries yields in intensity only to China, Japan and India. Meetings are regularly held at the head of state level (Boris Yeltsin's visit to Seoul in November 1992, South Korean presidents Kim En Sam's and Kim Dae Jung's visits to Russia in June 1994 and May 1999, respectively). There is active interaction at the foreign minister level between the two countries (from 1992 to 2000 several reciprocal visits took place between the foreign ministers). New summit and high-level meetings are waiting their turn.

A multitude of joint ventures operate in both our countries. Several major economic cooperation projects have been coordinated, including construction of a Russia-China-South Korea gas pipeline from the Irkutsk Region, and the building of a Russian-Korean industrial complex in the Nakhodka free economic zone. Interaction in international organizations, the UN, APEC (which South Korea helped us to become a member of), ASEAN, ARF, and ASEM, is going well. Direct air and sea communication is being maintained, and scientific and technical ties are expanding via academies of sciences and scientific institutions, and cultural and sports exchanges are taking place. Military and technological cooperation is also developing to a limited extent.

We can look to the future with optimism: trade, regional contacts and investment cooperation will grow (particularly if South Korea can give them the corresponding state support). The South Koreans are still interested in our science and technologies.

With respect to concerns about tomorrow the most important thing is for the two nations to increase their knowledge about each other. We need to develop a creative process of mutual understanding with the aid of the mass media, scientists, cultural figures and "people's diplomacy".

It is thought that if the Koreans engage in this cause with the forbearance and determination characteristic of them, progress will be achieved. And it appears that this is precisely how the present South Korean leadership is geared. Of course, this also requires practical steps and solutions on our part.

On the threshold of the new century, our countries have a good chance of establishing truly mutually beneficial partnership, which is something they both need. Russia has changed: it has embarked on the path of democracy and market reform. This is making it an increasingly attractive partner for the Republic of Korea both politically and economically. The Republic of Korea has also changed: after overcoming its crises, it is striving for a more independent, balanced policy, for which friendly and trustworthy relations with Russia are vitally important. And it is not at all Utopian to predict today that in the 21st century the relationship between Moscow and Seoul will be one of the most important components of the political and economic situation throughout Asia, bringing with it, we are sure, peace, stability and prosperity.

The two countries need close cooperation in their own interests and in the interests of peace and stability on the Korean Peninsula and in Northeast Asia. It is thought that Russia will continue to make a more constructive contribution to the problem of settlement in Korea.

The 21st century is a time of rapid changes in the world and an era of information technology and telecommunications. At the beginning of the new millenium Russia and the Republic of Korea, sharing such common values as democracy and a market economy, should continue exerting every effort to contribute to the development of both countries and the world as a whole.


1. Pravda. September 18, 1988.

2. Soviet Foreign Ministry Bulletin. March 31, 1990, p. 38.

3. First Russian-Korean Forum, Moscow, 1999, p. 52.

4. A.V. Torkunov, and E.P. Ufimtses, "The Korean Problem: A New

View.", Moscow, 1995, p. 53.

5. Izvestia, December 15, 1990.

6. Nezavisimaya gazeta, June 3, 1994.

7. First Russian-Korean Forum, pp. 69-70.


8. RUSSIA - NORTH KOREA


A new Axis for multilateral structure


G.Toloraya


N.Korea was once a significant economic partner of Russia (then Soviet Union) in Northeast Asia: the trade peaked at 1,4 bln roubles (more than 2 bln US $) in 1987. USSR has provided economic and technical assistance in construction of 70odd key industrial objects in the neighboring country. Among them one can single out Songbong ("Syngri") oil cracking facility, Kim Chaek full-cycle steel plant, several power plants (in Pyongyang, Chongjin - Pukchan, Ungi) coal mining pits. Nampo non-ferous metal plant and aluminum producing plant in Pukchan, several chemical plants, electric appliances plants, textile factories etc. The construction of nuclear power plant was agreed upon in 1985 and some preparatory work (including locating the site and arranging field research) was accomplished.

Sure enough, these economic cooperation was far from being mutually profitable. The trade was based on clearing system, thus enabling DPRK to accumulate trade imbalance and unauthorized short-term trade debt. The latter was afterwards on a regular basis converted into longer-term state debt. Total debt, accumulated as a result of N.Korea receiving development loans (tied loans for industrial construction), loans to finance supply of military hardware and the above-mentioned loans for financing of trade imbalance amounted to 3,8 bln. rubles as of the beginning of the 90-s. The repayment of the debt was highly irregular and virtually stopped in 1990-s.

However, not all Russia's cooperation with this reclusive country was solely a one-sided one, based on the political considerations or "socialist internationalism". In 1980-s new forms of industrial micro-level cooperation were initiated - buy-back deals (p.e. truck batteries plant was erected), fabric was supplied to North Korea to be sewn into garments there and then to be re-exported to Russia. The use of North Korea workforce in Russian Far East although creating certain social and political problems, was also quite well economically motivated. The regional cooperation with the bordering Russian regions became a significant factor in satisfying N.Korean needs.

The dramatic changes in Russia created a situation, when almost all ties with North Korea were severed and North Korea was generally considered an "unacceptable" partner for newly privatized Russian companies whilst state-owned entities had no financial resources to continue traditional types of cooperation with this country. Economic crisis in North Korea (according to some estimates, its GNP was halved over last decade) along with turbulent reform period in Russia severely undermined practical possibilities for meaningful Russia - North Korea cooperation.

The two-way trade contracted 8-fold in 1992-1997: from US $ 600 mln. to US $ 75 mln. Russia's share in North Korea's overall external trade diminished to no more than 4-6%. Over half of to the trade (about 100 mln. dollars in 1999) is border trade with Russian Far East regions. North Korea export earnings to Russia ($ 20 mln.) are for more than 60% based on service sector exports: earnings of N.Korean workforce in the Russian Far East.

Investment cooperation has been terminated (in the 1990-s only a handful of Russian companies tried investing in N.Korean marine sector and mineral production). Scientific and technological cooperation, which has once significantly contributed to the creation of technological base in North Korea, has also come to a standstill.

Does all of the above means, that Russia should view North Korea as a kind of a "black hole" on the economic map of Northeast Asia and avoid taking this country into account for any long-term regional cooperation planning? That would have certainly been unwise for several reasons.

North Korea possesses a number of economic and locational advantages.

1. It is located in the center of a dynamic region, potentially offering the shortest route for land, marine and sea transportation and communication. Many major infrastructure projects in Northeast Asia, including multilateral ones, could be drastically reduced in cost by using this factor.

2. North Korea has a comparatively developed infrastructure (if only outdated and in need of modernization), and basic industrial structure in contrast with many Asian nations. Its physical, climatic and ecological conditions are suitable for industrial development with low-cost initial investment.

3. North Korea has a literate, disciplines and hard-working population with very low consumption level (cynically speaking, the decades of totalitarian dictatorship could become a blessing in disguise). At this point of time a large portion of it is unemployed, latently or openly.

4. Projecting into the future, the absence of any legislative and institutional base for market economy now can also turn into another blessing in disguise: a balanced and goal-oriented introduction of a new market mechanism in a concise and easily manageable economy would not probably encounter difficulties inherent to bigger economies (like Russia or China). The only problem is, whether a pragmatic and realistic economic rehabilitation strategy for the country could be worked out and implemented, provided its leadership allergy to foreign advises.

5. In contrast to other post-communist countries, North Korea has a ready investment source: South Korea, who's contribution to economic development of the country is already visible and will become increasingly so in the years to come (even in the absence of large-scale macroeconomic reforms, not to speak of an alternative scenario). Inter - Korean summit in June 2000 raised many hopes for a real breakthrough, changing economic situation in North Korea.

Last but not least is the political factor. Russia, as well as other regional and non-regional powers, cannot ignore a nation of 20 mln. people next to it threshold. The desperate economic situation the country is now can become a security threat.

Thus, bilateral Russia-North Korea economic cooperation should be promoted with the use of government regulation leverages, if purely private business-level contacts seem to be unattractive. Of course, that does not mean that Russia could return in any form to one-sided, "big-brother" type cooperation of the past. However, government support, both on federal and regional levels seems to be essential for implementation of several projects which in the long run would be profitable. Current political rapprochement (including unprecedented Russia - North Korean Summit) creates a favorable atmosphere for that.

Development of economic ties and involvement of North Korea into broader international cooperation are possible even under present static conditions, when no macroeconomic reforms in North Korea are in sight. It goes without saying, that eventual introduction of new economic mechanisms in North Korea even in limited scale (such as export oriented sector, free economic zones) could substantially broaden the possibilities for cooperation.

The comparative advantages of North Korea cheap workforce against the background of a lack of arable land. This factor is already widely used by regional authorities of Russia, who employ N.Korean workers in timber cutting, construction, agriculture, etc.

The prospective areas of cooperation include

- timber cutting and processing in Russian Far East (a new framework intergovernmental agreement was signed on 28.12.1999, based on which regional authorities conclude detailed contracts);

- energy sector, including coal mining in Russia (a joint venture in Yakutia is created), and an idea of supply of electricity from Russia in exchange for N.Korean workforce (taking into considerations difficulties in financial transaction with North Korea) is also worth mentioning;

- agriculture and fishery sector (North Koreans can take part in fish processing, cattle breeding, soy bean production in Far East, with South Korean financial investment into this projects highly desirable).

- export - oriented sector, including North Korean textile industry, where cooperation based on introduction of Russian-technology was quite significant in the 1980-s.

To "defreeze" economic cooperation, given even the presence of political will on both sides after the signing of the new basic friendship treaty in February 2000 and President V.Putin's visit to Pyongyang, at least one crucial problem should be solved: that of North Korean debt. It should be restructured (maybe according to modalities, relevant to that of Paris club), and if nobody really expects immediate North Korean payments in full, at last some kind of formal agreement should be reached.

Another important leverage - bringing in multilateratilism in Russia - North Korea cooperation. The most obvious third-party partners could be from South Korea, as well as Japan, China, probably other Western countries as well. Russia could provide some type of guarantees for their participation, as well as furnish its unique know how of dealing with North Koreans and the knowledge of microeconomic situation.

There is a score of projects, where multilateral cooperation could bring really important results.

- Most obvious is in railroad transportation. Arranging of railroad traffic from South Korea via North to Transsiberian railroad and then to Europe could be really beneficial. According to some estimates, a traffic volume of 5-7 mln. tons a year is quite possible. That would mean for South Korean (and probably Japanese and other Asian) consigners saving several hundreds million dollars a year, and for North Koreans additional transit revenue of at least $ 100 mln. a year and also additional transit revenues for Transsib. South Koreans have already designed at least four variants of connecting South and North Korean railways, (some of then provide for transit via China), and the project is high on agenda for Russia and both Koreas (although North is still doubtful). However, modernization of N.Korean railroads would be necessary; in that case South Korean capital could be joined with Russian equipment and technicians (which, it seems, would find it easier to get to North Korea than South Koreans).

- Renovation of industrial objects, once built with Soviet assistance. For example, if South Korea, as President Kim Due Jung declared in Berlin in March 2000 and afterwards, wishes to develop social overhead capital in the North, energy sector is the obvious priority. Instead of designing new power plants and power grids, an investment of around $ 20 mln. could be enough for swift competition of the project of construction of additional power units of Pyongyang thermoelectrical power plant, requested from Russia by North Koreans. Additional projects could include modernisation of other power stations in N.Korea (70% of the energy is produced on Soviet-built ones) and construction of East Pyongyang Thermal Power Plant. Some of Russian equipment supplies might be counted in offsetting Russian debt to South Korea. Russia could also participate in the operation of future "technoparks" in the North, as she could use its experience in "processing on comission" in textile industry.

Another idea - possible cooperation at Songbon oil refinery, which is almost idle now due to lack of oil supply. A South Korean (or a Japanese) company could make an arrangement with a Russian crude supplier to purchase oil products, which are to be produced from Russian oil at this plant. North Koreans would get a percentage of this products as payment in kind). Such a method could be also applied to Kim Chaek steel plant, other Soviet-built factories. Probably another challenging venture for Chung Ju-Young!

- Ways for Russia to cooperation with KEDO on LWR project could be found. For example, Russia could join on condition it would become a long-term supplier of nuclear fuel for LWR (as well as some periphery equipment), and these supplies could be accepted as its contribution to KEDO (of course, with the membership at the board). Russian debt to South Korea could also be used for KEDO contributions (Russian supplies to settle the debt to be counted as ROK contribution).

- In the long run a rehabilitation strategy for North Korea is to be worked out and implemented. It could include assistance in energy, agriculture, transportation at the first stage and creation of an export oriented sector, integrated into global economic flows, at the next stage. Russia could be a part of this efforts - both by participation of its experts (whom North Koreans would probably trust more, than Americans) and by taking part in joint projects.

- Scientific cooperation with North Korea on multilateral basic is also quite feasible. Russian scientists could jointly with North and South Korean colleagues develop long-term programs and concepts for: regional energy and transportation structure (a unified Korean energy and transportation system being part of it); unified marine resources development program; regional ecological program etc.

At the beginning of XXI century Korean peninsula like a century ago, seems once again to become a hub of politics of the world powers.

It should this time hopefully become a test-ground for a new regional model of cooperation in a stable and prosperous North-East Asia. Russia really wishes to play her active role in this new staying of the play. Multilateral approach is the key word for it.


9. R U S S I A - the R O K:


IN SEARCH OF COOPERATION MODEL


At the second half of 1980-s mutual complimentarity of the Russian and South Korean economies was the key argument for the Soviet leaders for early diplomatic recognition of Seoul. Proponents of this approach argued, that not only the imports of South Korean manufactured goods would benefit Russian consumers, but South Korea "chaebols" would also invest in Russia with a prospect of localizing production. At the same time, Russian high-tech could be commercialized in the ROK with the product of joint ventures to be successfully marketed worldwide. The ROK was also seen as an important market for Russian raw materials and semi-finished goods, and production of Russia military - industrial complex.

Ten years which have passed after the normalization of relations witnessed only limited fulfillment of these good intentions. Although trade in 1992-1996 grew four-fould to us $ 3,8 bln, in 1998 it plummeted to us $ 2,1 bln. The main reason were crisis in Korea and Russia. However, some economists argue that limited negative effect of the crisis on bilateral trade means that this portion of economic relations is not located on the "main road" of economic progress of both countries. Another, more important factor was South Korea's protectionism (especially against Russian steel exports). Nearly 90% of the Russian exports to the ROK are low-end raw materials (metals, timber, sea products, chemicals), while Korea sends mostly consumer goods to Russia. The trade balance is fluctuating, and in 1999 for the first time in recent years became positive in Russia's favor (according to Korean statistics exports from Russia was us $ 1,6 bln, imports us $ 0,6 bln). Official trade statistics however don't take into account "grey" imports of consumer goods by Russian private petty merchants ("shuttle traders"), estimated at us $ 0,3-0,5 bln on a yearly basis. On the brighter side the overall trade volume is growing. The tendency of 1997-1999 of decline in trade is reversed, and year 2000 would probably see a double-digit rate of its increase.

One of the stumbling blocks on the trade ways is the Russian debt problem (now at us $ 1,8 bln, of which us $ 1,47 bln is capital debt). It should be self-critically said that Russia underestimated the probable effects of non-performing on its debt service to South Korea, which was not intentional, but predictable. At the beginning of the 1990-s the loans to be received from South Korea were widely seen as a sort of "present", "token of gratitude" for early diplomatic recognition and everybody expected South Korea to provide the credit facilities on favorable terms and to be lenient on the rescheduling. That appeared not to be the case. Seoul made Russia's failure to service its debt a big issue presenting it as a principal reason for non-encouraging the Korean entrepreneurs to do business with Russia (probably a good lesson for North Korea, now getting Light Water Reactors formally also on credits from KEDO!). It should be noted, however, that Russia, differently from its relations with other creditor nations ("Paris club"), pays to the ROK in kind (raw materials + armaments) and up to date has already delivered about us $ 350 mln in repayment. Kim Dae Jung's government, generally more aware of the Russian interests and possibilities than its predecessors did, however, little to ease the Rusian debt burden. On the contrary, signs are emerging that the issue might be galvanized in the wake of demands by Korean bank employees to settle the problem of the government guarantied loans. Unless resolved, this problem would probably spoil the atmosphere for otherwise mutually beneficial cooperation for years to come.

Russia's biggest hope - investment from South Korea in manufacturing sector is also slow to materialize. As of the middle of 2000, investment volume on the contractual basis amounts to only US $ 261 mln in 146 cases, while de-facto investment was US $ 131 mln in 93 cases (Russian investment in the ROK is negligible - US $ 6 mln only).

The ROK businessmen quote - not without reason - the unfavourable investment climate in Russia as chief obstacle to increased investment. And their experience with GKO (treasury bills) - the loss on operations with which during the 1998 financial crisis in Russia amounted to around US $ 500 million - has not added any optimism. Changes in the Russian taxation system as well as other measures to increase Russia's attractiveness for foreign investment might ease the problem. However, it is still hard to believe South Korean businesses will rush to invest in Russia - among other things, lack of government support (export credit insurance, etc.) is the reason. The perception of Russia as a dangerous and unwelcome site for Korean overseas investment (probably, not quite unjustly), seems to have deeply rooted in Korean business community. Again, the debt problem is cited as an obvious proof justifying such an approach.

Both sides now see implementation of large-scale pilot projects as a vehicle to boost overall investment. Korea - Russia industrial complex in Nakhodka free economic zone is especially worth noting. A 350 ha area is supposed to become home for a 100 of Korean enterprises, with projected investment of US $ 800 mln. However, Russian tax authorities are still doubtful, whether the provisions of the agreement, if implemented, would not become a channel for tax evasion. The need to clarify the issue (maybe, by signing an additional protocol to the agreement explaining certain terminology) at the moment prevents the ratification of the agreement by the Duma.

The situation with another ambitious project - linking of Russia, China and Korea with a gas pipeline gives more room to guarded optimism. Among several pipeline projects (most of which could be referred to as pipe dreams) the Kovykta gas field development is in a comparatively advanced stage, at least what concerns Russia and China. This project envisages, with the investment of US $ 8-9 bln, the transportation of up to 30 bln cubic m of gas from Irkutsk area to China and then ROK (Yellow sea coast). China has long opposed the inclusion of the ROK into the project and tentatively agreed only on condition that at least 20 bln cubic m of projected supply would be reserved for China. Korean side officially acknowledged its intention to buy 5-7 bln cubic m yearly, but the problem of its participation in the feasibility studies is still not resolved. Anyway, chances are not bad for realization of this project, which would change the energy supply situation in North East Asia and could well become the first meaningful example of multilateralism in this region.

However, the pessimists say that the above project, even if implemented, could well be the only significant one for the foreseeable future. Dozens of infrastructure and development projects are discussed by the Korean businessmen on the regional level with the authorities of the Far Eastern krais and oblast's (they include mostly construction, marine and mineral resource development, communication, ship repairs). Several "diagonal" agreements (Russian province on behalf of the Federal government - Korean government) are prepared, but these are little more than declarations of intent. Korean government seems to be interested in development of barter trade on regional level, but Russian authorities do not see it as a modern mode of trade and also suspect it would result in tax and custom duties evasion. In general, Korean businesses' activities in Russia are mostly directed at the sale promotion, rather than at any long-term investment.

Would the XXI century see the continuation of stalemate in economic cooperation between the two neighboring countries, which still posses mutual economic complimentarity? Both sides, unfortunately, seem not to be fully aware of the possibilities of business cooperation, which seems to still be a barrier even after 10 years after normalization of relations. However, the negative tendencies could be reversed. Russia has entered a period of a modest economic growth and readjustment of its economic structure, which gives room to new business opportunities, although still risky, but quite tangible. Korea has set ambitious growth targets, fulfillment of which could propel it to the position of the 7th largest trading nation on Earth by 2010, next to only Japan and China in Asia. And Korea would increasingly need resources and influx of new technologies (which are still in stock in Russia), as her production base grows. Recently, the interest to Russian technologies (such as non-traditional energy, biotechnology, membrane technology, rubber utilization etc.) has grown.

A serious boost to bilateral and regional cooperation could be associated with Russia's participation in inter-Korean projects. Russia could be a part of South Korean efforts to develop the infrastructure in the North (especially energy, heavy industry sector), create a transportation "land bridge" from Korea to Europe. The principal agreement of South and North on relining the railway between Seoul and Shinuiju with further connection (via China) to Transsiberian railroad opens vast prospects for multilateral cooperation in carrying out this revolutionary project (see for details the paragraph on Russia - North Korea cooperation). South Korean experts estimate the first stage of the project (reconnecting the railways) to cost about 150 bln won (US $ 120 mln) and to be completed in 2003, while modernizing the 389,7 km relevant section of railway in the North would cost 1,2 trillion won (US $ 1 bln). Russian technicians could be used to carry out the project in the North.

With South-North trade and economic cooperation steadily growing (trade volume increased from mere US $ 13 mln in 1990 to more them US $ 300 mln in 1999) Russian companies could well be a part of certain operations. For example, the so called "entrusted production" (which takes about 30% of inter-Korean trade, and almost 80% of textile trade), when North Koreans make garments from the fabric and by technology, provided by the South, is a method, widely used by the Soviet Union in 1980-s. North Koreans request from Russia continuation of this cooperation, since a bilateral agreement to this effect is still formally effective. Russian companies, having experience in this business, could join hands with South Korean investors.

Another possibility is Russian - South Korean joint ventures for penetrating North Korean market.

Russia and the Republic of Korea could also forge strategic partnership in the emerging globalization process. Moscow and Seoul could be partners in intensifying APEC activities, some Russian researchers argue. They could cooperate in Tumangan project more effectively. In the future APEC could sponsor "global" projects based on linking South Korean finance and management and Russia resources - from gas development and transport corridors to preservation and development of Baikal in the future interests of the humankind. APEC seems to be relevant in this contest, as it is the only economic grouping, where both Russia and the ROK participate and closely cooperate. Politically they have similar positions on many issues, especially support of step-by-step liberalization, promoting equality with reference to national specifics of member economies, promoting the development (Russia is especially interested in development of Siberia and Far East). Therefore Russia - ROK linkage could become a "locomotive" to invigorate the whole regional integration process in the framework of APEC.

APEC, however, is not the only possible framework. Russia watches with keen interest the tendencies within ASEAN and partner states, ASEAN+3 (China, Japan, the ROK) consultative mechanism being of particular significance. Some experts argue Russia joining this "club" is worth thinking about. Others worry that might raise suspicions in other parts of the world. However, should the idea of "East Asian block" get some steam Russia would be a natural member of such a structure, where its partnership with South Korea would be of special importance, both politically and economically.


10. RUSSIA AND THE TWO KOREAS


JOIN EFFORTS FOR EUROASIAN LAND BRIDGE


Commentary by G.Toloraya,


Deputy Director-General,


1st Asian Department MFA of Russia


at the 10th Session of the Northeast Asia Economic Forum


Changchun, China, 27 - 29.04.2001


Background


Russia pays great attention to promoting its role as a Euroasian land bridge. In September 2000 a conference on the issue of international transport corridors was convened in Saint-Petersburg. Russian government recently adopted a special "Action plan for realization of main directions of development of international transport corridors for 2000-2001" . This plan includes the Transkorean Raiload-Transsiberian Railroad (TKR-TSR ) connection project.

There are several corridors being created at present which could compete the corridors through Russia's territory, such as Trans-Chinese railroads which might go to Urumchi - Kyrgyzstan - Tashkent - Turkmenia - Iran - Turkey - Europe. Other projects exist (even as exotic as creating a port in Tumangan delta and building a railroad to Harbin), which could be a challenge to Russian interests. Therefore in recent years the attention to developing transportation corridors (which include both technical and organizational infrastructure) in Russia is on the rise.

Special measures were taken to revive the Transsiberean Railroad (TSR). The structure of transit cargoes on TSR is as follows (1998-1999):

ROK - Finland - 16,2%

Finland - Japan - 13,4%

Finland - ROK - 12,8%

Estonia - ROK - 8,0%

ROK - Kazakhstan - 5,4%

Japan - Afganistan - 5,4%

ROK - Uzbekistan - 5,3%

ROK - Norway - 4,0%1

Europe - Asia transit mostly go through Zabaikalsk on Russia-Chinese border, Vostochny port, or Naushki at Russia-Mongolian border. Khasan, Grodekovo, Vanino, Vladovostok) were also occasionally used for handling transit cargoes. That means that any new transit lines, including TKR - TSR line, would meet some opposition from the local Russian authorities, who would lose some of their income (especially Khabarovsk territory). With time of transit using Vostochny port being 25 days (of which 7 days are handling time in the port) while deep sea route takes 35 days and railway transit TKR - TSR 15 - 17 days the damage to Vostochny port by introduction the railway land bridge is obvious.

However out of 468,2 thousand TEU of containers transported between ROK and Europe in 1999 only 17,7 thousand TEU went through Vostochny. In case TKR - TSR link becomes operational, the flow would become much more voluminous (TSR tariff is only 0,03$- TEU/km, while sea link - 0,3-0,4 TEU/km), which could compensate the losses of Vostochny port - or at least, of Khabarovsk regional government.


Russian Efforts for TKR-TSR Project


Already in April 2000, even before the historic inter-Korean summit, Russian and South Korean experts held a conference in Seoul to discuss the possible variants of connecting TKR with TSR. That, incidentally, lay a foundation for North and South Korea to tackle the issue and to reach agreements on the issue and to start actual construction in the aftermath of North-South summit in June 2000.

According to ESCAP classification, five core routes have been adopted for Trans-Asian railway: Vostochny (Nakhodka) - Europe (11600km), Liangungang (China) - Kazakstan - Russia - Europe (10200 km), Tianjin - Mongolia - Russia - Europe (9500 km), Rajin (DPRK) - Russia. Europe and finally ROK - DPRK - China or Russia - Europe.

The TKR - TSR connection has 3 variants:

1. From the ROK the route travels through the DPRK to Namyang, the border point with China, across the northeastern part of China to Manzhouli, the border point with the Russian Federation at Zabaikalsk, and continues through the Russian Federation and across Belarus and Poland before reaching Germany. The route offers the advantage of running across the Tumen River Area, a growth triangle geographically located in China, the DPRK and the Russian Federation. The route is 10,950 kilometres. It has six border-crossings including two break-of-gauge points.

2. From the ROK the route travels through the DPRK to Tumangang, the border point with the Russian Federation, joins the railways of the Russian Federation at Khasan and continues through the Russian Federation and across Belarus and Poland before reaching Germany. The route is 12,350 kilometres. It has five border-crossings including two break-of-gauge points.

3. From the ROK the route travels through the DPRK to connect with the rail network of China at Dandong from where it travels to Beijing from where the rest of the journey to Europe copies the above-mentioned route. The route is 11,250 kilometres. It has seven border-crossings including two break-of-gauge points.

Russia is eager to develop the so-called "Eastern Korean Route": ROK - Kaesong - Wonsan - Tumangan. In October - November 2000 the delegation of Russian Railway Ministry (RRM) visited both Seoul and Pyongyang and agreed to set up the organizational framework of discussing the project (bilateral groups and subcommittees were created).

The issue of TKR - TSR project was intensively discussed (and is being discussed) on summit level. First it was analysed at President Putin - DPRK supreme leader Kim Jong IL meeting in July 2000 in Pyongyang and afterwards. Later the exchange of opinions between President Putin and ROK President Kim Dae Jung took place, including meeting in February 2001 in Seoul. North Korean side explicitly confirmed its desire to modernize and develop "Eastern" route in cooperation with Russia. South Korea expressed its intention to continue linking of North and South and indicated it has no objections to development of "Eastern" route, while at the same time putting priority on development of "Western" (Seoul - Siniju) line in bilateral format with North Korea.

Using this opportunity I would like to outline Russia's position on these two routes. They should not compete with one another but rather develop in parallel with different specialization. "Western" route would probably take the bulk of ROK-China bilateral trade cargo, while "Eastern" could be used mostly for transit, as Russia-ROK trade is much less than China-ROK one. Of course the consignees from ROK and other countries would be free to choose any route, but economics and pure common sense show that kind of specialization would be natural. TSR could handle 20-25 thousand TEU yearly with their number increasing to 400 thousand on a yearly basis by 2005. That would be also beneficial for DPRK, who would not only get the revenues for transit (according to some estimates, up to US$100 mln a year) but could also receive an impulse for development of its Northeastern areas, including Rason FEZ.

It is understandable why DPRK takes keen interest in this project. Recent Rusiia-DPRK ministerial- level consultations in Pyongyang (March 2001) resulted in a framework agreement on the project. A team of Russian experts examined the "Eastern" railway route and drafted several variants of its modernization and reconstruction. The possibilities of supplying equipment and technicians are explored. Russia is ready to mobilize the necessary funds for carrying out modernization of this railway - provided, of course, the guarantees for future operation of the whole of the route are in place. That kind of guarantees could be obtained by concluding official agreements with both North and South Korea - or a trilateral one. We would also welcome international financial participation. For example, if Northeast Asia Development Bank is created, loans or investment from it would be welcomed. Other regional and international financial institutions could also take part in this Russia-Korean project.


11.Korean Peninsula: are There Things


More Important, than Peace?


Georgi Toloraya


Deputy Director-General, 1st Asian Department, Ministry of Foreign Affairs of Russia and concurrently Leading Research Fellow, IMEMO of Russian Academy of Science


A Russian comment on Leon V. Sigal (Feb. 20), Daniel Pinkston (Feb. 20), Aidan Foster-Carter (March 7), William Taylor (March 13) essays on US new security policy vis-a-vis Korean Peninsula.


Last year gave everybody involved in Korean affairs a slim hope that after so many years of hostilities and uncertainty a new modus vivendi could be worked out in Korean Peninsula. The main elements of a new structure would seemingly include:

1. Political reconciliation and limited economic cooperation between North and South, that would provide a base for a long-term peaceful coexistence of two Koreas;

2. Normalization of relations between North Korea and its main adversaries - US and Japan, that would give North Korea security guarantees and access to Western economic aid - not emergency one, but production-oriented.

3. Cautious economic reforms (but not real opening!) in North Korea resembling (but not copying) Chinese - Vietnamese way, proceeding on condition they do not undermine Kim Jong Il's power base and do not invite foreign interference.

4. All of the above having as a result a qualitevely new North Korea - not a "belligerent terrorist outlaw rogue state", but another developing if not so democratic, country, looking for its place in a new world order. Such a country could exist and develop for a prolonged period of time before it would become willing - and ready - to integrate on an equal basis with South Korea - with consent of all of its neighbours.

The one but crucial condition for such a development is, however, the need to completely abandon any plans to change North Korea from within, to introduce democracy in a missionary style. Such attempts would really be based on a wishful thinking, inability to grasp the nature of North Korea as a sort of cult-state, governed by ideology where the concepts which are acquired by a Western man with his mother's milk are completely alien. Leon V. Sigal names only but a few of the myths prevalent in Western (and also South Korean, which also has a westernized mentality) perception of North Korea. The gap is actually much wider than most of Western analysts think, and the testament to it is the fact that North Korea is regarded as an "unpredictable" country, which equals to being dangerous.

So, engagement is good as long as it does not threaten North Korean regime (or it would not be percieved as a threat), but helps North Korea get educated how the world is run. You can't hasten the advent of the spring by melting the snow, even if you use artificial sunshine. At the same time any attempts to pressure, to dictate and "get tough" would only lead to contrary results - militarisation, rather than demilitarisation, more threat to neighbours rather than less. This is not a "dove" approach - rather, this the only pragmatic, deideologized one. And we will have to support not "the Kim Jong Il's reform effort, as distateful as it mey be", as Dan Pinkston suggests, but Kim Jong Il's regime per se, to enable him to change his country, although such an idea may be a hard sell in the US.

North Korea should not be treated as stranger, A.Foster-Carter writes and this seems to be precisely the recipe for the new US administration. Only keeping up the Agreed Framework, continuing Washington-Pyongyang dialogue with the prospect of formal normalisation in view would make it possible for the USA to solve existing problems - and avoid a disaster in Korea. Or are there things more important, than peace? Many neighbouring nations, including Russia would disagree.

The crossroads, as W.Taylor puts it , is right ahead of us.


Best regards,Georgi Toloraya


12.RUSSIA AND KOREA: NO NEWS IS GOOD NEWS


Prepared for


X11 IMEMO-IFANS Conference.


Moscow, June 2002


Political cooperation between Russia and ROK in what many consider a new era in international relations develops smoothly. There seems to be no major contradictions that might jeopardize it In that sense no news is good news - business as usual is now the motto of Russia-ROK cooperation. The author presumes that the readers are fully aware of the positive side and importance of bilateral cooperation in various areas and just skips the description of achievements. However there is still space for improvement. This paper- probably in an "endless search of perfection"-concentrates mostly on the problems and issues of concern rather than on successes. It goes without saying that this does not mean Russia-Korea relations are `strained' or `deteriorated'.

In fact the tragic events of September 11th 2001 paradoxically had a positive impact on Russia-Korean relations. The aftermath of `9.11' resulted in consolidation of foreign policy positions of Russia and ROK.

Both countries actively supported the antiterrorism operation in Afghanistan and made - in their own way - contribution to it. Russia and ROK both share the need for continuation of the fight against terrorism and as yet have no contradictions with the United States on this goal.

At the same time US desire to capitalize on the antiterrorist struggle for their own geopolitical purposes rose similar uneasy feelings in both countries although for different reasons.

Russia became suspicious of US real intentions on Afghanistan and Central Asia. Some quarters interpret continued US presence there as the quest for domination of the area.

Korea - or at least its public opinion - became wary of inclusion of North Korea in an "axis of evil" by the US President. Both in Korea and in Russia many fear it would jeopardize South-North dialogue and raise tensions on the peninsula. Korean diplomacy made its best to soften US stance on North Korea. Russia acted in similar direction , using much the same arguments and with the same motivation. Both our countries are interested in stability in Korea for security reasons and as a precondition for fruitful economic cooperation projects. That provides ample ground for joining hands.

In the meantime Russia thanks to its qualitevely new relations with Pyongyang found itself in a position to more efficiently than in the past influence the developments on Korean peninsula. Due to that new reality for the first time in many years the Korean situation came into constant focus of attention of Russian supreme leadership. However this change was mostly attributable to Moscow's successful efforts to normalize relations with North Korea rather than increased cooperation with the South. Quite unexpectedly the result of the two President Putin-Chairman Kim Jong Il meetings was not only normalization but also unprecedentedly close political relations with North Korean leadership. It provided Moscow with a leverage to promote inter-Korean dialogue and cooperation.

Logically, Seoul should have jumped on such an opportunity to gain support for its "sunshine policy" and to use Russian expertise to better understand Pyongyang motivation and make it more adaptive to its overtures. That would have in turn led to more cordiality and confidence in bilateral relations with Russia.

However in Seoul the "Russian factor" seemed to remain largely underestimated or taken with suspision. Strangely enough after Kim Jong Il's landmark visit to Russia contacts between the heads of Russia and ROK, frequent in 2000-2001 virtually seceded. Diplomatic cooperation became routine (several deputy-minister and below level consultations did take place) but never acquired in-depth coordination quality with respect to Korean settlement which the situation prompted. Knowing by their own experience how persistent Korean politicians and diplomats could be Russian experts could not but suspect lack of attention and trust on Seoul's part.

Of course, Russia could be reproached for the lack of goodwill and sincerity -understandably, as total secrecy and confidentiality are the precondition of its contacts with the North , Russian side could not fully open the cards. Probably, neither could South. Korea. However Russia was always ready and eager to share its opinions and estimates. South Korea on the contrary was very much inquisitive as to what was discussed between Russians and North Koreans but seemed not to be especially receptive to any advises and estimates that Russia had to offer. And the "feed-in" for Moscow on Korean situation now comes more from Pyongyang then from Seoul. That does not mean of course that we would see the situation "through Pyongyang spectacles" but for a balanced view the information should not be one-sided. Regrettably Seoul seems not to trust Russians enough to share it or send any meaningful signals to Pyongyang through Moscow.

Moreover Russian initiatives aimed at improving Korean situation and promoting North-South cooperation (related to Russia in one way or another) are getting rather lukewarm attitude in Seoul - they are usually declined or studied much too cautiously. One example is Russian proposal to finance power plants modernization in the North by reducing its debt to ROK. Seoul never considered the proposal seriously. Another is Russian concept of Eastern direction of TransKorean railroad. Seoul took wait-and-see attitude towards it when Russian side informed in Autumn 2001 that North Koreans puts a priority on this particular route. Southern attitude changed only when the North directly pushed the issue in April 2002 - but precious several months were lost. Other less publicized examples exist.

One cannot but wonder what are the causes for such regrettable lack of sincerity and cooperation.

One reason is obvious - ROK is too much preoccupied with its internal affairs - World Cup and presidential election being the most important ones - which are not related to Russia whatsoever. Being engrossed in internal politics makes any national administration a difficult partner for dialogue.

Another seeming reason -- still existing lack of trust, which in some quarters has not diminished due to Russia's increased cordiality in relations with North Korea. Nor the need for more trust is felt. Some policy makers still have the picture engraved in their minds of only US and China influencing North Korea behavior.

One important factor limiting the scope of Russia-Korean cooperation is Seoul's alliance obligations - some Russian critics go as far as to doubt, whether Seoul could accept anything that do not fully correspond with US policy priorities One example is the clause in February 2001 joint statement of Putin-Kim Dae Jung meeting indirectly critiquing US plans to withdraw from ABM treaty. Kim Dae Jung later - in March 2001 - had to de-facto denounce that clause in Washington which made Russia wonder what is the real value of any obligations Korea undersigns Of course Russia also is not immune from unhappy incidents but at least no one has to blame them on foreign influence.

The need to increase mutual understanding is recognized in both countries. One good practical idea initiated by Korea was to send about 250 VIPs in "Friendship express" across Russia in summer 2002 (along the same route Kim Jong Il traveled last year), making stops in seven cities for bilateral functions. Knowing, however, logistics and other problems in provincial Russia one cannot but wonder whether the impressions of Korean guests would be totally positive and would this exercise really stimulate Russia-Korean exchanges in the future. Nevertheless, any country should be taken as it is for sober judgements.

Much as political and security issues are important in bilateral relations economic sphere was always considered by Russia a priority in dealing with South Korea. (this year it is second only to football). Now that Kim Dae Jung's era is coming to a close, we may say with certain frustration that although his attitude towards Russia was very positive no major breakthrough was achieved in economic cooperation, although both countries overcame the 1997-1998 financial crises and potential for substantial increase in trade and investment reappeared .

The debt problem is still far from being solved. Capital debt stands at US$1430 mln, interest is calculated by Korean banks at US$483 mln, while Korean side also wants to receive US$200 mln comission and US$ 95mln of legal expense. Russian side would like to reduce interest and write off part of debt according to the model of cooperation with Paris club. As a result of starkly different approaches the negotiations stalled. In the meantime repayment in kind be Russia has also stopped. So the debt problem still poisons the atmosphere for any fruitful deals.

No wonder agreements on new supplies of Russian arms partly on debt servicing are hard to reach. President Kim Dae Jung agreed in February 2001 to buy up to US$500 mln of Russian military equipment on this basis, but since the Ministries of finance of two countries have not reached agreement the negotiations on the contracts for arms supply also got nowhere (only couple of them have been signed). Korean military seem to be frustrated of waiting and do not vote for Russian arms any longer. Russia feels frustrated after rejection of both its submarines and SU-35 jet fighters at the tenders in ROK. For political experts, it should be noted, the result was predictable. Russian arm traders and politicians now wonder, whether ROK has ever been serious on this and similar projects from the start. Such feelings cloud the prospects of cooperation not only in military hardware but also in important high technology field.

One promising field is space research. By the way ROK pleaded Russia in early 2001 to help it join the Missile Technology Control Regime (MTCR) promising cooperation in space technology, including satellite launching. Russia, lured by the prospect and wishing to promote friendly relations just before Presidential visit to Seoul after some hesitation (caused by doubts missile developments in ROK might aggravate security situation and have a spiral-off effect) finally agreed. The only practical result up until now has been, however, ROK getting from US the advanced Army tactical missiles ATACMS with range up to 300 km (the signing of the contract was reported in January 2002). Russian experts do not see this as a contribution to security in the region. ROK did however propose to Russian agencies to take part in a tender for launching its Comsat-2 satellite, but having got the experience with previous "sensitive area" tenders Russian companies would probably have to think twice.

Progress in investment is also far from satisfying. The only good news is "Lotte " decision to invest in construction of a huge trade center in downtown Moscow. However agreement on Russian-Korean Industrial Complex in Nakhodka virtually fell prey to interagency struggle within Russian government. Because of it the additional memorandum to the Agreement on RKIC which is to be proposed to Korean side to clarify the meaning of several articles (dealing with taxation and governance of the Free Economic Zone) is still not ready. At the same time Korean side made it clear any substantial changes of the contents of the Agreement, even in the form of Memorandum, would need ratification by ROK National Assembly, which is unacceptable.

Another large-scale investment project -Kovykta gas pipeline from Eastern Siberia to China and Korea - is not progressing very smoothly either. The feasibility study is being prepared but continuing uncertainty who would be the chief coordinator of the project from Russian side (looks like China and Korea would like to see Gazprom in this role) slows the process. China is not very eager to accelerate the project either. In the meantime another potential source of gas supply to Korea from Russia- Sakhalin-2 project is treated coolly by Korean government who seem to be wishing to get formal request from Russian government about its order of priorities. The Governmental program on the prospects of development of gas industry in Siberia and the Far East now under preparation would probably help.

Russia now sees its cooperation with ROK on creating the land bridge from South Korea via Transkorean Railroad and Transsib to Europe as centerpiece of its diplomatic and economic efforts vis-a-vis Korea. However the practical discussions are now limited to the contacts between the Russian railway ministry and Ministry of construction and transport of ROK and cannot be considered overproductive. The need for political impulses on both sides is obvious. The problem lies in a fact Russian economic agencies are reluctant to commit themselves fully until a binding agreement between North and South is reached. But the issue is a hostage to troubled relations between Seoul and Pyongyang.

Fisheries have recently emerged as a `hot spot' in bilateral relations. First the area for Korean fishers to catch saury had to be moved away from South Kuril Islands in late 2001 due to the protests of Japan (which claims the sovereignty of the area to be disputable). Later the bilateral government quota for pollack for year 2002 was reduced to 25 thousand tons. Moreover Korean fishers could fetch no commercial quotas (they needed as much as 100 thousand tons) because Russian companies bought out all at the auctions. The root cause is of course depletion of pollack resources - much a result of previous years' excessive fishing. However that do not make the situation for 2000 Korean fishers laid off as a result any easier. The issue is acquiring political dimension.

In this context we have to recall that maybe most part of Russian pollack (some estimates say up to 500 thousand tons) ends up in Korea anyway - either caught by Koreans, or joint ventures, or by Russian ships (some of them actually based in Korea) bringing in the fish illegally. Russia has for a long time proposed to conclude an agreement on exchange of information on trade of sea products to prevent Russian poachers from illegally selling the fish to Korea. However as this business is pretty lucrative for Korea Korean side shied away from that proposal. After the agreement to this end was reached with Japan Russian illegal exports of sea products to Korea increased manifold. The need to find solution becomes more acute as Russian-Korean negotiations on the problem begin.

Humanitarian and people exchanges area is not free from problems either. Rising aggressive nationalism and especially the so-called skinhead activities in Russia frighten off Koreans and for a good reason - several incidents of brutal attacks on Koreans have already been recorded. The "riot" in downtown Moscow after the Russian football team lost the game to Japan on June, 8th with clearly anti-Asian mood demonstrated the gravity of the problem. We hope that Russian police will start to take this problem seriously and the situation will improve.

The recent signing of visa protocol shortens the period of visa issuance and will make travel easier. It should be noted that as protection of the rights of Russian citizens abroad has become one of the objectives of the Russian Foreign Service the issue of `Russian girls' in Korea emerged. There are several thousand of them. They enter Korea as dancers but forced to work as prostitutes under semi-criminal arrangements and, what troubles us, are mistreated - threatened, beaten, not paid etc. The threshold of tolerance on such incidents is now pretty low.

To finish on the optimistic note I want to stress that a compromise solution can be found to almost all of the above-mentioned problems. Sure, concentrated efforts of political, economic leaders and professionals from both sides would be needed. In this connection I would like to draw the attention to highly symbolic step for creating favorable conditions for dialogue and communication between them - construction of modern embassy complexes in both capitals. The very story of diplomatically solving the issue of former Russian diplomatic property in Seoul and reaching agreement on exchange of plots for diplomatic missions is a living proof that Russia and Korea can find amicable solution to even most difficult and sensitive problems. Russian embassy complex in downtown Seoul is to be formally opened by Russian Foreign Minister in July. It is the most modern embassy building in Korean capital - that symbolizes the future-oriented nature of Russo-Korean relations. Korean Embassy in Moscow to be opened next year will also surely become one of the noticeable objects in the center of the capital, underlining increased Korean presence in Russia.


13.Scenarios for North Korea


Georgy Toloraya,

Research Director of The Center for Contemporary Korean Studies, IMEMO, Moscow


It seems that the U.S. media has successfully indoctrinated much of the public, as well as a remarkable part of the world's political establishment, with the idea that the "aggressive and unpredictable North Korean dictator," Kim long 11, has destabilized the Korean peninsula with his desire to accumulate nuclear weapons, in addition to his million -strong army. The proponents of the above perception believe that Kim's goal is to threaten his neighboring countries and, if possible, conquer the prosperous South. This perception is strengthened by the fact that his father, Kim 11 Sung, pursued this very same objective in the 1950s. This argument immediately suggests a solution, which is to use all means possible, even force, to permanently remove any nuclear, chemical or biological weapons from this dangerous adventurer and blackmailer.

To all initial appearances, this solution may seem logical and practical. But what is to be done afterwards? Is it possible to allow the dictator to continue to rule after his arsenal of weapons has been removed? Well, if we follow the logic now being practiced by the U.S. in Iraq, that would be a half measure. A totalitarian regime, even if it is brought to its knees, is simply no good: the world must be freed from the danger of such threats resurfacing again in the future, while the oppressed subjects should be granted liberty and democracy. However, this will prove to be a more involved process than simply replacing the vanquished North Korean regime with a friendly government; North Korean statehood would probably cease to exist and the reunification of North and South Korea is the only possibility. However, those wishing to go this far to eliminate the state of Juche are totally convinced that the Korean peninsula will thereupon be enjoying peace and serenity.

Those who proffer such "unsophisticated remedies" blithely ignore the fact that following WWII a united (although throughout the history torn apart by internal contradictions) Korean nation gave birth not just to two states, but to two distinct civilizations as well. The modern northern and southern Korean regions share only a small percentage of similarities; the remaining part is alien and beyond each other's comprehension. Therefore, many questions need to be answered: Are the twenty million inhabitants of North Korea ready to accept radical changes in their lives? Can one count on their being suddenly obedient to their southern "masters"? Is South Korea prepared to bear the responsibility for their destinies, which would prove to be exorbitantly expensive? Finally, how will such a scenario affect the international security of this volatile region where the interests of the United States, Japan, China and Russia clash?

The North Korean "nuclear crisis" which captured headline news in the fall of 2002, proves that there are no easy ways to undo the sophisticated knot which has been made only tighter through many circumstances: Korea's ideological and physical separation, the half century of confrontation between the communist and capitalist ideologies and the inherent animosity between the U.S. and North Korea. So before we start undoing this intricate garment by tugging at the nuclear strings, we must provide an answer to the key question: are we for or against the overnight disappearance of North Korea ? This is the final question that underlies the nuclear controversy, and it is the answer to this question which will determine how dramatically the views of the states involved in it diverge.

JUCHE SPECIFICS

What exactly is the North Korea of the early 21st century like? Briefly, it is a country which possesses few natural resources, and operates an archaic, closed economy inside a rigid political regime. This society is structured more along the lines of Confucian feudal traditions and nationalism, rather than purely communist principles. The closed and isolated society still lives by the iron laws of .Stalinism, made even worse by an oriental reverence for those in power who rule the country by anachronistic command methods.

Living under such a system, of course, is probably quite far from being a positive experience. This is due not only to widespread poverty , but also because of the absence of elementary freedoms. For both the people of North Korea and their neighbors it would be more comforting to see a civilized and individual-oriented system in place of the present regime. (However, one should not forget that the Oriental Confucian understanding of personal freedom is narrower than that in the West; this fact is proven by the present examples of .South Korea.) North Korean society is undoubtedly growing weary of its many years of stagnation. It has even given birth to a rather inconspicuous agitation, thus signaling that it may be prepared for modernization if provided with a reasonable course of action.

Does Pyongyang present an immediate threat to its neighbors? The answer seems to be no. First, the thousand-year history of Korea provides no examples of its attempt to conquer other nations. Second, North Korea has no overt reasons for aggression (including attempts to impose its ideology , capture land or economic resources). Nor does it seem to possess the real ability if provided with the opportunity. North Korea's military verbiage and militarization, which seems so striking to the visiting journalists and average Western citizens, are aimed at exerting strict control over society and scaring away potential aggressors whom the top Korean leaders fear so much. Whereas the late Kim 11 Sung, traumatized by his experience of the Korean War (1950-1953), hoped against hope that Korea could be forcefully reunited, Kim Jong Il and his men are more concerned with their own survival. This, however, does not prevent them from probing the possibilities for a future change.

The present impasse will be broken sooner or later, and there are two options for this transition -evolutionary or revolutionary . The evolutionary way, which appeared impossible for the East European communist countries, looks quite probable with North Korea, as it is a country with a bureaucratic monarchial system rather than one based on pure Soviet orthodoxy .It is not too difficult to imagine the North Korean leadership welcoming the creeping privatization of public property. The beneficiaries could be principal state authorities -the leaders of the army and special services, the party bosses, and local civil servants (Kim Jong Il is really interested with Russian experience, with all the radicalism of reforms leaving much of the property in the hands of Soviet-time administrators).

Under such a transition, economic conglomerates would emerge, like the South Korean chaebols, but with a greater government interest in them. By attracting foreign (mostly South Korean) investment and orienting the economy on exports (the low cost of labor in North Korea could make its products very competitive for exports), such conglomerates are capable of forming the basis of the country's economic development. The monarchic absolutist political regime could continue while gradually abandoning its communist verbiage in favor of more nationalist declarations. Such developments cannot bring pros- perity to the working people in North Korea, but they could provide a more decent life, at least without the threat of starvation. The absolute power of the state would be reduced and a transition to a new model would not be accompanied by horrible calamities. In 15 to 20 years Kim Jong Il's heir (who, according to North Korean tradition, is to be nominated now) would inherit an entirely different country , possibly featuring govern- ment-sponsored capitalism and entertaining close economic ties with South Korea. It would be far from a bona fide democracy, but more acceptable to the world community. One or two generations later the reunification of Korea could be on the agenda -initially as a confederation or a union of states and later, as an entity suggested by future developments.

In Washington, however, it seems the decision-makers prefer revolutionary methods which demand some form of external interference. They cannot count on any oppositional allies inside North Korea -any dissident activity in the country is resolutely thwarted. Moreover, any dissent is simply impossible in a country where everyone is shadowed and where there is no reliable information from the outside world. Any attempts at a 'palace revolution' would only incite a more belligerent stance against the rest of the world -power would fall into the hands of even more conservative leaders than Kim Jong Il -or would end in total chaos and an eventual surrender to external forces, which would carry many awful consequences. The revolutionary option would entail the liquidation of the entire government system in North Korea and necessitate a replacement by an occupation administration from South Korea.

South Korea (or at least part of its establishment) may hope for a peaceful occupation, together with the creation of a rigid administrative system over the North Korean population, but Iraqi post-war example shows lots of traps along the way. The Southerners fail to consider the likely alienation of the North Korean population, stemming from both the ideological and traditional discord between the regions, as well as their predictable unwillingness to become second-rate citizens in a united Korea. Numerous civil servants and the military in North Korea will fear possible reprisals at the hands of their new leaders, therefore, an armed guerrilla opposition would be quite possible (the preparations in the North for such a possibility may be well underway), and it would likely win the allegiance of the local population. The many centuries of Korean history provides us with a glimpse of what such a fight would look like: it could realistically continue for many tedious decades in the mountainous terrain and may even derail prosperous South Korea from its respectable position in the global economy.

Philosophically speaking, the enflaming of tensions in the Korean peninsula was provoked by a conflict between the opponents of the evolutionary and the revolutionary approaches. The advantages of the evolutionary option have become apparent for China and Russia, as well as for the Seoul administration of Kim Dae Jung and the Japanese government of Junichiro Koizumi, although the positions of these countries may differ in particulars. However, the President of the U.S., George W. Bush, does not seem prepared to tolerate any "rogue nations. "


WHY DOES KIM JONG IL NEED AN A-BOMB?


Having consolidated his power in the second half of the 1990s, Kim Jong Il began to seek a way out of the impasse his country faced. He could not openly revise his father's legacy (although he did take some encouraging moves, like apologizing to Japan for several kidnapping incidents) nor put at risk the stability of the existing power structure. However, Kim seemed determined to end the isolation of his nation ( Russia played a vital role to help him out of diplomatic blockade) by pledging rapprochement initiatives with the South, as well as normalizing its relations with Japan and the EU. Through other bold domestic initiatives, such as bringing salaries into line with work efficiency and building an "open sector" in the economy, Kim clearly demonstrated where his main interests lay. It is due to these actions that Russian President, Vladimir Putin, dubbed Kim as "a man of modern views," and continued his sup- port for him '- even during Kim's confrontation with the U.S. However, Kim's "modern mindset" did not prevent him from strengthening the country's defenses which would deter his enemies from their attempts to overthrow the regime. True, his interest is to preserve his power and his state. However, evidence would suppose he is not dreaming of "barrack-room socialism," but rather a form of constitutional monarchy, independent and relatively wealthy, such as exists in the Southeast Asian country of Brunei, or an authoritarian regime, like in Malaysia.

Why doesn't such an option, in which Russian diplomacy and Kim Dae Jung's government invested so much effort, appeal to President Bush? Bill Clinton, for one, had init1al plans for a military solution to the nuclear problem but eventually acquired a better understanding of the situation. Eventually, he became a proponent of North Korea's global "involvement." The objections emanating from Bush and his administration probably result more from their animosity toward "the last stronghold of communism. " The White House is probably of the opinion that nothing should assist the current regime in North Korea, despite the fact that there is hope for a positive, yet gradual, change. Or could any rapprochement of the two Koreas jeopardize U.S. strategic interests in Northeast, Asia, including the deterrence of China and the control over Japan? Or do the Americans consider it below them to bargain with "the bad guys? " Kim Jong Il has no chances to be taken for a good guy due to his background, and not least of all to stubbornness of conservative thinking in the US. This is why the U.S. administration did not support Kim's innovations in 2001-2002 and forwarded a strategic decision to combat his regime. It had very little difficulty finding a pretext, and wasted no time in accusing the "rogue nation " of developing weapons of mass destruction. However, it was through the US pressure which caused North Korea to reactivate its nuclear program, thus creating the danger for a nuclear military potential in the region. Russia cannot accept such developments since they threaten the region with the classic domino effect.

Regrettably, North Korea does not rule out the possession of weapons of mass destruction as a means of deterrence, and unfortunately has the same insouciance toward international law concerning WMD as the U.S. hawks have toward international law in general. The events in Yugoslavia and Iraq have convinced the North Korean leadership that they can only rely on themselves. Even before the relations between Moscow and Seoul were normalized in the early 1990s, Soviet Foreign Minister Eduard Shevardnadze was informed that since Pyongyang was denied the support of the Soviet Union it was forced to develop "the means of deterrence". The North Korean nuclear program frozen in 1994 was undoubtedly of a military nature, but it remains unclear as to how successful it was. Many experts in Russia believe that North Korea does not possess the technical and economic capabilities necessary to develop an A- bomb, but North Koreans may think otherwise while pursuing the program and reporting to their leader of its progress.

But in fact has North Korea do not nave a special need (if only a psychological one) for a nuclear deterrent: it possesses enough conventional deterrence weapons capable of inflicting an unacceptable amount of damage to U.S. troops stationed in South Korea, to South Korea itself and to Japan, to prevent an aggression. This is why the 1994 Agreed Framework was particularly beneficial for the North Koreans -in fact, they sold a non-existent product (the U.S. might have entered into the KEDO deal apparently hoping for the collapse of the Korean regime) . The suspected Highly Enriched Uranium program of North Korea provided the US with a valuable opportunity to kill two birds with one stone. First, not to "pay the bill" by accusing the partner of violating the arrangements and terminating the Agreed Framework. Second, to create the necessary prerequisites for regime change should the situation permit.


U.S. PLAN FOR THE CAMPAIGN AND NORTH KOREAN COUNTER-PLAN


In October 2002, U.S. emissary James Kelly accused the North Koreans of secretly buying uranium enrichment equipment. It does not really matter whether intelligence this time was accurate or not: in the opinion of the U. S .administration, the presumption of innocence does not apply to the "axis of evil" countries, and compared to Iraq, North Korea could hardly whitewash its reputation.

Understanding this, Pyongyang embarked on a very dangerous game - it decided to make the Americans nervous and force them into negotiations. North Korea declared that it "can obtain not only nuclear but more powerful weapons" to counter the American threat. The North Koreans counted on the experience they had gained during their contacts with the Clinton administration, which would have begun seeking some sort of a compromise.

However, the North Koreans failed to understand who they were dealing with this time -their position only played into the hands of the "hawks". Although the statement was intentionally ambiguous and apparently propagandistic bluffing, the U .S. took it as North Korea's admission that it is working on a secret nuclear program (there has never been any proof of that), which further aggravated the situation. The U .S. stopped delivering fuel oil to Korea under the Agreed Framework , while North Korea restarted its plutonium program and withdrew from the nuclear non-proliferation treaty.

At the same time initially North Koreans openly declared -and called upon Russia and China to be witnesses -that they were prepared to make their nuclear program more transparent and even admit inspectors into the country, provided the U.S. give guarantees of inviolability (suggesting that in this case they will no longer need deterrence weapons). Washington, however, at this stage demonstrated no intentions to issue any guarantees; it declined to enter into negotiations with Pyongyang, despite pressure from Russia, .China, and even Japan and South Korea. Paradoxically, as the crisis unraveled in the end of 2002- early 2003 US showed no marked signs of willingness to learn the truth about the North Korean nuclear program. Instead the US proposed bringing the discussion to the UN with an apparent hope to build a coalition against North Korea when the situation becomes more opportune. The North Koreans interpreted this as the U.S. playing a waiting game until the Iraqi campaign is over and took a new course- not only threatening with creation of nuclear weapons but making practical steps to produce it (it is important in this context that practical actions were taken by DPRK only after it declared walking out of NPT in January 2003).

Only the imminent threat of North Korea going nuclear brought about the start of negotiations in Beijing in April 2003. North Koreans, however, dramatically raised the stakes by declaring on the onset that they already possess the nuclear capability and from now own want to be treated accordingly. The result was the 4 month-long hiatus in the negotiations as Washington had to adjust itself to this new reality. Regardless of the fact whether Kim Jong Il has a nuclear bomb or just bluffing (intentionally or sincerely believing his scientists had achieved success- which is impossible to know without tests) the choice remains essentially the same - use of force to sweep away the regime or compromise with it.

Things will hardly come to war -the potential damage of Pyongyang's retaliation is too great. However, the U.S. is capable of isolating North Korea and choking it economically; especially since Washington can appeal to the world for support as the North Korean moves are provoking international sanctions. US figures, that stripped of humanitarian aid, funds from arms exports and remittances from ethnic Koreans living abroad, the convulsing regime -without raw materials and energy -will eventually collapse and the North will be absorbed by the South. This will take time, but then Washington is in no hurry , as it knows perfectly well that the threat coming from North Korean weapons of mass destruction is only marginal.

Kim Jong II has only two options: either he honorably capitulates or begins a risky game and places the U.S. before the dilemma: either it starts a military conflict or yields and enters into negotiations with North Korea in search of a compromise.

Such a game may have serious consequences. Russia - which up until now has unreservedly supported Pyongyang -may eventually become a hostage of this game. If talks - be it six-party, or bilateral - lead nowhere, he will simply have no choice. And a cornered regime may commit a desperate act.

Peace or war in Korea? An answer to this question will be provided in the next few months. It is critical that Russia and the world community restrain Kim from an irreparable act, on the one hand, and help Bush save face and resolve the issue peacefully, on the other. However, not every dialog will be efficient. North Korea's proposal to abandon weapons of mass destruction in exchange for the guarantees of inviolability will save the status quo in Korea. The current U.S . thinking seems to be aimed at turning up the pressure on Pyongyang through multilateral efforts and eventually changing the status quo. This is unacceptable to Pyongyang, and if the U .S. insists upon its option, the Korean peninsula could be swept away by a conflict which would far exceed the scale of the war on Iraq.


14.President Putin's KoreanPolicy


Georgi Toloraya


Preface


Since ascension of President Putin to power, Korean peninsula has for the first time in half a century (elapsed after the Korean War) become a priority issue in Russia's foreign policy. Started in 1998-1999 this tendency became obvious in 2000 after the signing of the new Russia-DPRK basic Treaty and further progressed thanks to "summit diplomacy" with both Korean states. The crisis over the North Korean nuclear problem put the situation in Korea into the focus of constant attention of the Russian leadership and political elite. Russia acquired a new role, illustrated by the following US admission: "The inclusion of Russia [in negotiating a broad regional accommodation with North Korea] is essential and would mark a departure from past US regional strategy, which has focused on trilateral cooperation with South Korea and Japan, as military allies, and has included China, but not Russia, in a series of...security dialogues..."

This is a sharp contrast not only to Yeltsin's government period but also to the Soviet era, when the only outbreak of interest to Korean affairs was related to the normalization of relations with Seoul in 1990. Current situation is also different from that of the 1993-1994 nuclear crisis, when Russia played the secondary role and in fact, nobody wanted to take responsibility for formulation and implementation of a coherent independent policy. It took some time and efforts to overcome neglect to this strategically important area as shown by the forthcoming retrospective analysis.


Dynamics of the Balance of Power around Korea


Before the USSR collapsed the situation in Korea could be described as "confrontational stagnation", which was based on established power balance between the USSR, USA, China and Japan. On the positive side the Cold War framework guaranteed stability and predictability as any attempt to break the status quo was discouraged by the big powers. Under this arrangement, neither of Korean states needed an individual deterrent to prevent attempts to attain political goals by use of force.

In the 1990-s, a new international order started to emerge. All the participants of the subsystem of international relations around the Korean Peninsula tried to obtain position that was more advantageous for themselves without proper considering other's interests. However the struggle never crossed the "red line". Frankly, this should be credited not to the good intentions but rather to the enormous North Korean military potential, which could have caused unacceptable damage to its adversaries and contained them. Possible harsh Chinese reaction also discouraged any attempts to forcefully change the status quo. This situation suited Russian security strategy, so Moscow, lacking enough foreign policy reserves and troubled by the crises elsewhere actually abstained from investing excessive efforts into Korean affairs. At the same time, internal turmoil in Russia prevented it from pursuing its economic interests in the area.

The vulnerability of such an approach for Russia clearly manifested itself during the nuclear crisis of 1993-1994. That crisis was solved (although temporary) on an essentially bilateral basis - between DPRK and the USA. However, in the process the factor of China - who posed itself as virtually the only counter-balancing force to those who wanted to annihilate North Korea - substantially grew. At the same time a system of coordination between the USA, Japan and ROK emerged, enabling both Tokyo and Seoul to harmonize their interests with US efforts even in the absence of direct influence on Pyongyang.

Moscow in fact chose an observer's role: welcoming the efforts of US, ROK and Japan to do away with North Korean nuclear program Moscow at the same time realized that the issue of the very existence of DPRK was at stake and would not support excessive pressure on Pyongyang for fear of a catastrophe. However, Russia was not persuasive enough on either of those strategies. In fact, the lack of clear-cut goals and of political will, not the abilities to influence, was the matter. Although the objective goals of Russia - preservation of peace and stability in Korea - were attained with the signing of the Agreed Framework, ending the nuclear crisis, Russia saw its authority in Korean affairs dwindle.

Other partners mistook such behavior for the lack of capability to influence the situation and assumed Russian interests could be ignored.

When KEDO was created Russia, who had the agreement to construct LWRs in DPRK still in force and had invested in the project (the results of feasibility studies were later used by KEDO free of charge) was not even seriously offered to become a part of this organization.

Russian idea to search for overall solution to the Korean issue through a six-party format (now re-invented by Japan and USA) was ignored. Instead, the "Two plus Two" formula, pushing Russia aside, was implemented in 1996.

South Koreans from the very start essentially tended to see their relations with Russia mostly through the prism of confrontation with the North on a basis of `zero sum game' and considered the rupture of relations between Moscow and Pyongyang (leading to further isolation of the later) as their goal and achievement.

By the end of 1990-s the US-North Korean relations (in the framework of the `Perry process') started in the absence of checks and balances to almost fully determine the situation in Korean peninsula - or at least the changes in it. Such monopolization tended to contradict not only Russian, but also Chinese and to an increasing degree - Japanese and ROK interests.

By that time Russian experts and later the political elite came to understand the need for a change in the picture of international policies in Korea not only to promote and protect Russian security and economic interests but also to ensure predictability and create conditions for a brighter future for the both Koreas. Russia possessed the unique card for it - improving of relations with Pyongyang on a new basis.


Policy Shift on the Edge of the Century


It should be noted that democratic Russia in fact inherited rather cool relations with North Korea from the USSR. Kim Il Sung resented perestroika and the `treacherous behavior' of the Soviet Communist Party leaders and was deeply suspicious of their intentions and motives. His worst fears materialized when USSR without proper consultations with Pyongyang normalized relations with ROK. Coupled with cessation of economic assistance (due mostly to USSR internal economic hardships) this was seen by the North Korean leaders as the act of hostility (although that was not the case) They were deeply hurt and felt betrayed, and relations with USSR became sore in 1990.

New anti-Communist elite of democratic Russia did not consider North Korea a worthy partner and some tended to take seriously Western predictions of the forthcoming collapse of Pyongyang regime. Many `new wave' politicians seemed in addition to fall into the trap of simple logic: in order to have good relations with capitalist South Korea - a promising new partner, one should denounce "communist era mistake" of supporting DPRK and break relations with it altogether. These tendencies were of course quite visible to North Korean leaders who as a result suspected Russia in a secret desire to help overthrow their regime. As a reaction Pyongyang tried to limit contacts with Russia, considering it if not openly hostile, than at least a non-friendly state.

However the solving of the nuclear crisis provided "a moment of truth": experts succeeded in persuading Russia's political leadership that the picture on Korean peninsula was not all that black and white. Pragmatic interests of preserving peace and stability in Russia's neighborhood and new understanding of the nature and prospects of development of the North Korean society overtook the previous primitive ideologically biased approach.

As a result, from middle of 1990-s Russian approach to Korean affairs became more rational and balanced. However, the North Koreans still were suspicious and it took quite a time for them to respond to the new approach. As one high-ranking Russian diplomat put it, North Korea is like a turtle: it takes only fraction of a second for it to withdraw into its shell in case of danger but several long hours would pass till it would finally move out its head again. Although after Kim Jong Il, who had no personal grudge against "Moscow traitors" came to power in 1994 the road for Russian-North Korean rapprochement was cleaned, no significant breakthrough could have been achieved before the end of Yeltsin's era.

First, however, Russia had to upgrade the concept of her policy in Korea. While Moscow's policy vis-Ю-vis South Korea - a swiftly developing democratic country - was more or less clear, the case of North Korea was more difficult. Regardless of the negativism of the public to the social-economic model of this heir to Stalinist system, which Russia has itself denounced, the difficult choice had to be made for the good relations with Pyongyang for the sake of peaceful future of Korea and the region.

Peaceful unification of Korea, resulting in emergence of a friendly prosperous neighbor, corresponds Russian interests. But no pressure should be applied - Russia presumes that the solution should be found by Korean people themselves, provided it would be non-violent and would not negatively affect the regional situation and interests of the parties concerned. The latter should limit their activities to the creation of atmosphere conducive for the amicable solution of contradictions between the two Koreas, development of economic internationalization in line with contemporary globalization trends. These goals of Russian policy do not contradict to those of other parties involved - therefore a balance of interests could be achieved with minimum goodwill.

Pursuant to these goals Russia's policy priorities in Korean peninsula and means to achieve them can be summed up as follows:

- Prevention of tension, military confrontation in Korean peninsula, as well as of

proliferation of WMD here with the aim to provide secure and stable environment

for peaceful coexistence and development;

-- development of ties with DPRK on a friendly non-discriminatory basis, helping DPRK not only to guarantee its security and preserve its sovereignty, but also to come out of isolation and achieve social and economic progress coupled with deeper involvement into international cooperation;

-- Increase in constructive partnership with the Republic of Korea as a priority partner in Asia not only in economic realm and in purely Korean security issues but also in solving wider global issues;

-- Checking anybody's attempts to unilaterally dominate Korean affairs which could be detrimental to the `concert of interests' in the region and could destabilize the situation or seed the seeds of a future conflict;

-- Coordination of efforts for Korean settlement with all the international `players' both on bilateral and multilateral basis.


Russian Initiatives vis-Ю-vis DPRK in 2000-2002.


By middle 1990-s North Korea thanks to Russian overtures started to change its attitude towards Russia, in 1994 naming it a "friendly country" with which it was willing to develop relations regardless of differences in ideology and social systems". The rapprochement became more visible in 1998-1999, when DPRK began to answer Russian initiatives. In March 1999 in Pyongyang Russian Deputy Foreign Minister G.Karasin won principal concessions from North Korean side on the contents of the new Basic treaty to replace the communist rhetoric-laden "Alliance" treaty of 1961 and initialed it.

That signaled a radical shift in North Korean approach not only to Russia but towards the whole world. In fact, that was the start of changes in North Korean foreign policy the world would only notice in 2000. The choice of Russia as a "test case" was by no means accidental. On the one hand, Russia was a traditional, well-known partner. On the other hand, Russia was a democratic country, not only a P5 member of UN Security Council, but also accepted to G8. Therefore, Russia could and actually played the crucial role in breaking the shell of diplomatic isolation of North Korea and providing conditions for the temporary `thaw' between Kim Jong Il and the West in 2000.

Russia-DPRK Treaty on Friendship, Cooperation and Goodneighbourless, concluded on ministerial level in Pyongyang on February 9th, 2000 was the first document signed by DPRK, which claimed adherence to the UN Charter and international law. The Treaty stressed the need to eliminate the split between the North and South on the principles of independence, peaceful unification and national consolidation - these principles, (first agreed between North and South in July 1972), were later confirmed by Kim Jong Il and Kim Dae Jung during their historic summit in June 2000.

In July 2000, President Putin undertook the historic visit to Pyongyang - first ever by Russian or Soviet head of state. Many aspects were unprecedented - Russian leader got the first invitation ever signed by Kim Jong Il, that was the first official negotiations by Kim Jong Il with a foreign leader and Russia-DPRK Declaration was the first international document, signed by Kim.. The reinforcing of UN role and rejection of interfering into the internal affairs of other states, reducing coercion in international relations and condemnation international terrorism and separatism (more than a year before 9.11!) were emphasized in this document. For the first time DPRK announced that its "missile program does not threaten anyone and is for strictly peaceful purposes" (this formula was personally agreed by Putin and Kim Jong Il during one-to-one talks).

The outcome of this visit proved several things. First, it denied the statement that DPRK is unpredictable and "cannot be dealt with". Second, it manifested specific Russian role and abilities in Korea, which had been underestimated. Third, the visit suggested an alternative to the "stick and carrot" tactics vis-Ю-vis Pyongyang - a policy of a dialogue on an equal footing, without blackmail and pressure.

On the practical side, the visit gave the impulse to the talks on economic cooperation (including the issue of North Korean debt to Russia), on Russian participation in economic projects in North Korea (specifically in energy sphere). The humanitarian cooperation (Russian artists coming to Pyongyang, exchange of students) was also revived.

The return visit of Kim Jong Il in summer 2001 proved to be a watershed event not only for Russia-Korean relations but also for DPRK itself. This was the first time Kim Jong Il visited a post-communist country and the experience he and his entourage accrued is indispensable for any changes in DPRK. More important, Kim understood that Russia, still looking for a proper way out of its communist past, is not going to preach North Korea and that not only officials but broader layers of society are generally sympathetic with DPRK people, understanding their difficulties. Therefore, the long railroad journey that was criticized by media and was a burden for Russian hosts was well motivated and useful.

The political results of the visit underlined Moscow's constructive role in Korean affairs and Pyongyang genuine desire to `mend fences' with the world. The Moscow Declaration, signed by Putin and Kim Jong Il, among other things, stressed the need for continuation of the North -South dialogue, achieving breakthrough in the dialogue between DPRK and "such countries as USA and Japan". Kim Jong Il confirmed missile moratorium in Moscow. At the same time, however, North Koreans insisted on inclusion into the declaration of the "need for withdrawal of US troops from South Korea" (Russian side expressed only understanding, not support of it). Obviously Pyongyang's goal was to strengthen negotiation positions in the future talks with the Bush administration - which, unfortunately, never materialized. Disappointed North Korea media wrote later: "By signing Moscow declaration Comrade Kim Jong Il delivered a crushing blow on imperialists striving for world domination and absolute hegemony..."

After Kim Jong Il saw Russia for himself the attitude to Russia in Pyongyang changed radically. The bilateral top-level political dialogue became regular. Kim Jong Il and DPRK top leaders started to meet Russian guests (such as Presidential Representative in Far East K.Pulikovsky, Russian Foreign Minister I.Ivanov, Mayor of Moscow Yu.Luzhkov, Mayor of St.Petresbourg V. Yakovlev and others) and members of the Russian Embassy in Pyongyang on a regular basis. It provided Russia with unparallel opportunity to learn first-hand the intentions of DPRK and its assessment of the situation. DPRK. DPRK high-ranking officials also frequented Moscow and Russian Far East.

Kim Jong Il himself indicated his visits to Russia are no longer something extraordinary. In August 2002, he came to Russian Far East mostly to study the socio-economic problems of the region and the measures Russian authorities take to solve them. The summit with President Putin in Vladivostok was of course the highlight of the agenda, but this meeting already was not a sensation - it was a business-like discussion on the ways of developing cooperation and on DPRK's dialogue with US and Japan. High on the agenda was the project of Transkorean railroad connection to Transsib, initiated by the two leaders during their previous meeting in Moscow. At that time, Kim Jong Il became very enthusiastic about this project and gave orders to promote it.

Russia in fact suggested a radically new concept of trilateral cooperation eventually accepted by both North and South. It is aimed not only on achieving economic benefits, but also provides for North Korea's integration into international division of labor and creation of stable and predictable environment in Northeast Asia. Through consultations with both North and South in 2001-2002, Russia reached the general understanding on the concept of the project and completed pre-feasibility studies of reconstruction of North Korean part of the future line. In late 2002 Russia suggested creating a multinational consortium to implement the project and trilateral talks to finalize the route, gauge, general principles and other related issues. However, the aggravation of political tension in Korea due to the nuclear issue as well as change of administration in Seoul postponed the progress.


Constructive Partnership with ROK


In November 2002 the tenth anniversary of signing of the Treaty on the Basic Relations between Russian Federation and Republic of Korea was celebrated in a rather humble manner. That was a contrast to the spectacular start of relations in early 1990-s, which made many experts believe that Russia-ROK partnership based on the common values of democracy, freedom and market economy would be trouble-free. The two states really did not have major historic contradictions. Moscow has promptly satisfied Korean demands to straiten up the history of the start of Korean war, KAL "Boeing" downing in 1983, and eased South Korean concern with Russian military support of North Korea.

However, as the time passed by, both sides grew dissatisfied. I believe that what South Korea really expected from Russia deep in her heart was assistance in uniting Korea on her terms. Seoul probably hoped that Moscow would not only break its ties with Pyongyang, but would actively cooperate with Seoul and its allies to bring down Pyongyang regime. Those hopes, however, from the very start were ill-founded, because Moscow had quite a different concept of how the Korean settlement should look like and tried to prove its logic to the South Korean partners - but they in fact turned deaf ear to these explanations and felt betrayed in their hopes.

On the other hand Russia expected that after normalizing relations with Seoul it would have a larger say in Korean settlement, also overestimating the flexibility of South Korean vision of Korean problem and the limits of Seoul's maneuvering ability in security matters. Moscow felt disappointed that the promises of "economic co-prosperity" and of investment flow into reforming Russian economy never materialized - which was also the result of misperception of Korean economic priorities and Korean business system.

When Russia turned to a more balanced policy towards the two Koreas, Kim Yong Sam's administration, calling it "equi-distant" (which is not the accurate term) saw it as a failure of its strategy to "win over Moscow" to its side. The nadir of relations came in 1998 with the "spy scandal" poisoning mutual trust and economic cooperation plummeting down because of financial crises in both countries.

A wiser and more down-to-earth approach to relations with Russia should be credited to Kim Dae Jung's government. First, his `sunshine policy' was more in line with Russian ideology of solving the Korean issue. Second, Kim Dae Jung clearly saw the need for closer cooperation with Russia in Korean affairs and taking into account her lawful interests in the region. Third, his government tried to promote economic cooperation, seeing the need for compromise on thorny issues such as debt settlement and Russian desire to win its share of Korean high-tech market, including armament. The result was rapprochement between the two capitals, clearly demonstrated during February, 2001 Russian-Korean summit in Seoul (only second in the history of relations). President Putin's visit produced both agreement to cooperate in settlement of Korean problem and important economic deals, including supplies of Russian arms and other goods amounting to US$700 mln partly in settlement of Russian debt. The understanding on TKR-TSR project was for the first time reached with Seoul; President Putin publicly stated the implementation of this project " will lead to the global communication breakthrough." However, the limits of cooperation on global issues was also demonstrated: Seoul's support in the joint declaration of the Russian view on missile defense issue caused Washington's displeasure, and US media even stated that Kim Dae Jung "opposed the USA" and "made a mistake". Russia, of course, was not aiming to cause the rift between the allies because this was detrimental to its own promising cooperation with ROK.

Noh Mu Hyong's election victory was widely hailed in Russia as creating brighter horizon both for cooperation in bilateral projects and international affairs, including Korean settlement. President Putin in his congratulatory message to President Noh stressed the need for enhanced cooperation to solve North Korea nuclear problem and the importance of TSR-TKR connection project as well as military technology and investment cooperation.

During the first months of 2003 the exchange of top officials was brisk: Russia was visited by Vice-Minister of Foreign Affairs and Trade, Special envoy of the President-elect, Senior assistant to the President, while Russian upper chamber of Parliament speaker S.Mironov, Russian Minister of Defense S.Ivanov visited ROK. New agreements - agreement on air transportation, agreement on space cooperation are prepared. The trade grew by 10,7% in 2002 to reach $3,1 bln - almost the pre-crisis level.

In bilateral cooperation, the long-term economic projects should be put on the forefront. The most important is TKR-TSR connection. Russia wants to speed up agreement with ROK on the route and parameters of the project based on the results of her studies of North Korean railroads. The three-party meeting is eventually needed to determine the concrete forms of joining hands on this grand design. Russia thinks Noh Mu Hyong government should be more active and should not wait for physical opening of traffic between North and South and "evaluating it results" (as was suggested by South Korean side) to promote the project.

Another important sphere of cooperation is Russian energy supply to Korea. At least two projects - pipeline from East Siberia (which is scheduled to be operational by the end of decade) and LNG supplies from Sakhalin (available from year 2006) are feasible. Russia thinks it is important to promote both of them and dismisses opinions that Russia may obtain "too big a share" of Korean gas market.

High-tech cooperation is also a priority. Space technology (including launching Korean satellites) is an especially promising field. Russia would also welcome Korean purchases of Russian armament and related technologies on a non-discriminatory basis, resisting outside political pressure which South Koreans admit exists. When these suppies are effected in the framework of settling the outstanding Russian debt to Korea this also helps solve this long-standing problem, blocking the sound development of investment cooperation of Korean companies with Russia.

Russia also aims at amicable solution of certain contradiction in fisheries. On the one hand Korean fisherman want more quotas for fishing in Russia EEZ that Russia can physically provide, as the stocks have been depleted due to excessive fishing in previous years. On the other hand, Russia is troubled by illegal fishing when the catch goes to Pusan and other South Korean ports without any permission and taxation.

However at the beginning of Noh Mu Hyong's era the most urgent area of cooperation of the two countries is security and preserving peace in Korea. ROK and Russia are in a unique position to join hands to solve the crucial nuclear issue.


The Nuclear Challenge


The sudden crisis in Korean Peninsula started in October 2002 did not catch Russia totally off-guard: Russia always presumed that absence of overall solution for the issue of the modus vivendi of DPRK with its major adversaries can at any moment lead to an eruption of a conflict. The current nuclear standoff only reflects the difference of opinions on the crucial point: should the international community work for the gradual involvement of DPRK or should it strive for the change of regime in Pyongyang - which is equal to the disappearance of DPRK statehood and its absorption by the ROK?

The evolutionary way, advocated by Russia, China and later - by Kim Dae Jung administration and Koizumi government, as well as EU, means cooperation with Pyongyang should be promoted, slow internal changes in DPRK leading to more openness without threatening its sovereignty should be welcomed, but any attempts to undermine its regime must be avoided. That does not mean of course that any provocative external behavior should be tolerated or deterioration in socio-economic situation should be overlooked. However, this way suites the interests of all the parties concerned. Nevertheless George W. Bush declared North Korea to be the part of `axis of evil', which in effect means the regime should be brought down in a revolutionary manner.

North Koreans grew wary of US intentions as their attempts to continue the dialogue with the current US administration on the lines started with the previous one failed. When J.Kelly came to Pyongyang in October his mood was clearly vindictive, and North Koreans saw it as a "declaration of war". Regardless of whether they would have confirmed the existence of the clandestine uranium enrichment program or deny it the result would have been the same. The US side would demand verifications, inspections and present increasingly unfulfillable demands which would eventually drag North Korea into the Iraqi trap. Pyongyang decided to contain the US with "constructive ambiguity", hoping that would force the US to the negotiation table to settle the issue on mutually acceptable terms. This was a miscalculation. US hawks in fact sought neither the true picture, nor, probably, compromise solution: the purpose was not to let North Korea off the hook and do away with the "rogues" altogether. In fact the US has for the long time presumed North Korea already had a couple of plutonium nuclear devices, so a couple more of uranium ones would not have changed the strategic picture decisively.

Russian diplomacy from the very start could well grasp the real intentions and motives of the both parties. An ancient maxima says: "A fool blames the other; a clever one blames himself; a wise one blames no one". Russian approach rests on a need for a peaceful solution and, therefore, on a presumption it is counterproductive to try determine who did a wrong things; rather, the efforts should be aimed at finding a compromise solution that could do good to everyone. As the escalation of tension unfolds in fact following the US scenario (Kim Jong Il wanted the dialogue from the very start) it is necessary to let US attain at least closest of their goals (i.e. discontinuation of its obligations to construct LWRs and reappraisal of the Agreed Framework) without letting North Korean side to irreversibly aggravate the situation - for example, by actually attempting to produce nuclear weapons.

On the early stages of the conflict (in November 2002) Russia suggested the approach which could be described as "first freeze, then get back where you were". This approach presumed: non-nuclearization of Korea; US-DPRK bilateral return to obligations under Agreed Framework and negotiating a new arrangement; re-start of US-DPRK dialogue aimed at a "package solution"; no damaging fallout for North-South, DPRK-Japan and other dialogue formats in Korea. On this basis, Russia conducted intensive diplomacy with North and South Korea, US, Japan, China, in the framework of G-8 and IAEA. The summit between President Putin and President Bush in St.Peterbourg on Nov. 22nd, 2002 and President Putin's discussion with Chinese leaders (Beijing, 1- 3d December, 2002) are especially worth noting. Joint Russia-Chinese stand call for both non-nuclearization of Korea and normalization of US-DPRK relations.

Unfortunately, these efforts brought no results. US were adamant at increasing pressure on Pyongyang without any concessions, while Pyongyang saw it as the evidence of US intentions to corner DPRK and bring it down. North Koreans answered by walking out of NPT on Jan 10th 2003, thus implying they might have to resort to developing a nuclear deterrent to repel US aggression. Russia took this possibility as very real, knowing from its own experience with Pyongyang it had ambitions to produce nuclear weapon even in 1970-s.

The stakes became higher but the basic Russian recipe remained the same: it was elaborated in the proposal for a "package solution". The main elements of such a "package" included about a dozen synchronized steps: starting from mutual simultaneous declarations on DPRK possible return to the nuclear freeze and US readiness to resume supply of heavy oil, continuing with bilateral consultations aimed at agreeing on the current status of Agreed Framework and what to do with it. At a more advanced stage, US and DPRKs were suggested to make a list of their concerns and demands to each other and exchange them. At this stage, the "co-sponsors" (Russia and China as well as ROK and Japan) might join to analyze these lists and upon exchange of views on what was realistic and what was not, advise to the two parties accordingly. With their help, DPRK and US could determine what to start with and what to leave for the future. Of course, the minimum minimore was DPRK return to NPT, its decline to possess the WMD and firm US guarantees of non-infringement on DPRK sovereignty and security. Co-sponsors could have acted as guarantors of strict fulfillment of these obligations by both parties ( as neither of the two seem to put much trust in UN or international law). In the future, DPRK and US could proceed to the full normalization and end to hostilities.

Russian President's special envoy A.Losuykov personally delivered these proposals to DPRK on Jan 18-21, 2003, when he met Kim Jong Il and other DPRK leaders and had in-depth discussions in Pyongyang. Russia strongly expressed its position in favor of non-nuclear Korea while North Koreans stressed they were ready for a worst case scenario, but the easy solution could be found if only the dialogue with the US could start. This position as well as Russian `package proposals' were immediately delivered to the US (through Deputy Secretary of State R.Armitage)

However before the beginning of the war in Iraq no improvement was in sight. North Koreans kept on sending signals (through Russia, China, as well as EU) that they want direct dialogue. US side only mentioned the possibility of a dialogue in multilateral format, that North Koreans suspected was a trap: the US, they believed, would only use it to create an "anti-DPRK coalition" and then would declare no deal could be made with North Korea despite the international efforts and the only solution could me by manu militari.

Russia's basic position is that any long-term Korean settlement should take into account the interests of all the parties concerned. The multilateral, namely, six-party format, could be useful provided it would also serve as a venue - or, maybe, a cover - for direct US-North Korean dialogue. Since the beginning of 2003 Russia's top leaders, including President Putin, Foreign Minister Ivanov keep on discussing these options and possibilities with the US and DPRK and other world leaders almost on a daily basis. US side during the talks with new ROK Foreign Minister in Washington in end of March expressed more optimism about North Korea stand, seeing possibilities for its participation in multilateral dialogue. Russia would support any format that would lead to a constructive solution. At the moment of writing there are causes for cautious optimism and room for intensive Russia-ROK coordination to help find negotiable decision.

Russia welcomed the news of Chinese efforts to bring together US and North Korea in Beijing, received in early March, and worked with Pyongyang and Beijing to help bring about the start of the talks. Moscow feels it would be a protracted process and is ready to do everything it is able not to let it stall. In the future, when the conflicting issues between the US and DPRK will be nearing solution, the need for a wider format, including, inter alia, Russia and ROK would arise. Russia will be ready to work for success of such a format, needed for any long-term solution in Korea.


Conclusion


Korean Peninsula is both a challenge and an opportunity for Russia.

For more than half a century, it remains for her a security challenge and current hostilities are rooted in a historic reality created with deep Russian involvement. Therefore the settlement of Korean issue cannot be achieved without consent of Russia and contrary to its understanding of the situation - simply because this issue has substantial bearing on Russian security and international standing.

At the same time, reconciliation of two Koreas presents great opportunities for Russian economic advance and deeper integration into Asia. Therefore Russian strategy in Korea is directed at creation of a balance of interests for all the parties concerned to build a solid foundation for peace and stability and provide room for cooperation in the name of economic prosperity.

This two-pronged strategy is based on a long historic experience in Korean affairs. It has taught Russia a lesson that two sets of delicate balance should be maintained: first, between her relations with conflicting Korean states and their allies and second, between security and economic cooperation issues. This remains the basis for current policy, including the search for the solution of nuclear crisis.


15.IN SEARCH OF FINAL SOLUTION TO KOREAN CRISIS: REGIME CHANGE OR REGIME TRANSFORMATION?


Presentation at the seminar " North Korean Nuclear Crisis and Beyond",


Victoria University of Wellington, Nov.18, 2003


Professor George Toloraya,

Research Director, Centre for Contemporary Korean Studies, IMEMO ( Russian Institute of Global Economyand International Relations)


It was clear from the beginning of the current nuclear crisis that Pyongyang was faced with life or death choice and would not succumb to pressure and capitulate, giving away the only trump card it has for nothing in return. Its politics therefore were quite clear and transparent. However one full year elapsed before a more or less comprehensive and future-oriented concept of Korean policy was formulated in the US: it is shared now by China, Russia, Japan and South Korea and provides for multilateral security guarantees to DPR Korea in exchange for its total dismantling of the nuclear program.

Why did it take so long to accept this not so sophisticated equation - the trade-off of nuclear program for security - which was in fact suggested by North Korea from the onset?

The answer is simple - at least from North Koreans' viewpoint. The West, they believe, sees toppling Pyongyang regime (either as a result of military actions, or an inner cataclysm, or at best, the demise of the regime in a "soft landing" manner) as the best recipe for final solution of not only the nuclear, but all other issues and concerns..

Is there any other way out of the impasse? How long, even provided the nuclear issue would be solved, North Korea should remain- or regarded - as a threat? Our view is cautiously optimistic: the change North Korea is already undergoing could provide a key to the solution not only of the WMD issue in the short run, but will also ease other concerns in due course.


Pyongyang's Logic and Strategy


. Let's start by analyzing Pyongyang's own logic and understanding of the situation - and not only in terms of nuclear crisis, but in a broader framework. The nuclear problem cannot be isolated - it can be solved only as a part of the creation of a new security framework in Korea and around it.

That means interacting with North Korea. Now the ideas in Pyongyang differ greatly from ten years ago. Kim Jong Il's state differs more and more from that of his father. The Democratic People's Republic of Korea can no longer be described as a Stalinist country The common belief that (at least in1990-s) Pyongyang did not "keep its word" under a score of treaties and thus cannot be trusted to keep future agreements should be also not taken for granted. Facts show that in most cases North Koreans stopped fulfilling their obligations in a response to what they considered a violation by the opposite party.

We should not label the regime "unpredictable" and apply conventional wisdom to North Korean actions. Kim Jong Il has proved he is an experienced state leader (although his aims are not similar to a democratically elected one and comprise survival of the regime, rather than survival of the people - but this has to be taken for granted) and a seasoned diplomat. He - unlike many of his opponents -plans several moves ahead and seems to fully employ Oriental tactics of fighting a stronger adversary. Ancient Chinese stratagems (there are about three dozen of them) could give a clue to North Korea's seemingly illogical behavior. To name but a few: " to make crazy gestures while keeping the balance", "extract something out of nothing" (to bluff), "to openly build a bridge, secretly commence the march to Chungquan" (let the enemy believe he understands your plans and win with an unexpected maneuver), " to deceive the emperor to make him cross the sea" (to seek for a stronger position for a battle), "to change the role of guest to that of a host". Many of these recipes remind us of crucial moments in the nuclear standoff and subsequent negotiations. And North Koreans do not share the view of the traditional Western morals that bluffing and deceit are deplorable (if only because the political practices - especially in the wake of the search for Iraqi WMD - testify to the opposite).

From that point of view the nuclear crisis can be regarded as a case of " the clash of civilizations", when difference in value systems and suspicions generate a conflict, on the surface having concrete cause. How would you expect North Korea to tie her hands by abiding the norms of traditional (Western=alien) moral in fighting for "higher values" in its own understanding? Pyongyang sees the world as a huge conspiracy against itself, and in fact its concern about the real motives of its opponents are well grounded. The history of the country itself as well as recent international events convinced the North Korean leaders that in the absence of strong allies (like USSR and China in the past) only military might can deter "the enemies of Korean Socialism" from trying to overthrow it. Which is probably not totally inaccurate.


Change of Regime or Change of Paradigm?


A full-scale military solution is now widely regarded as unacceptable, considering catastrophic consequences for the region. What is usually overlooked: even short of a war the collapse of Pyongyang regime would probably be a unparallel disaster for Korean peninsula. If we compare it with Iraq, the crucial difference is that regime change in North Korean case means the disappearance of the country itself. North Korean statehood as such would be finished, as South Korea - even if to refer to its constitution - cannot accept any new separate power in North Korea formed "on the local base".

Even if Kim Jong Il's is removed by "natural causes" or by a palace coup/uprising the final outcome would be much the same. Why? At first, either even more conservative forces would probably come to power - don't forget there is no internal opposition in North Korea and the regime takes great care to leave no chances at least for an organized democratic movement to take root. This would further aggravate the situation and increase North Korea's confrontation with the outer world, the situation would become even more dangerous and even further from the final solution, meaning we are back to "square one".

Or the power vacuum and chaos would emerge. Even if we would presume a truly democratic government could be eventually born out of this chaos (which is highly unlikely simply because there is no human potential for this in the North in the short run) who's going to wait for such a development under a crisis, involving hordes of refugees, local conflicts with arms falling into the hands of warlords, etc? The conclusion: the change of regime in North Korean case would thus boil down to the absorption of North by South and the North would become an " occupation zone".

Will this occupation be peaceful, given the differences between isolated and brainwashed for generations Northerners and Westernized Southerners? Are more than twenty million of North Koreans ready to become "second rate people" in a unified Korea? And what about the numerous army (2-3 millions of people) of North Korean nomenklatura? They would expect the worst - not just being left out in the cold like their colleagues in East Germany, but repression. That means they can resort to armed guerilla-type opposition, which would be taken at least with sympathy by the population. Most likely that plans of such guerilla activities already exist in the DPRK. Lessons of many centuries of Korean history teach that this "slow-burning" conflict with the prospect of involving neighboring countries can continue for decades. The world would then receive a Far-Eastern edition of Israel-Palestinian conflict. Iraqi occupation also offers a valuable example - even the combined forces of US and ROK would not probably be enough to properly govern North Korea. This would derail the prospering South Korean economy even if large-scale military actions would be avoided. Not to say about international implications - especially for China and Japan.


So is regime change really an option? And would not it be more practical for the world community to accept the continuation of existence of DPRK provided it behaves responsibly at least internationally in the short term? Is it really a danger to its neighbors? At present, the DPRK doesn't have any reason for aggression (for instance, an attempt to dictate its ideology to someone, to capture territory or economic resources), and moreover, it doesn't have the smallest chances to win in case of such an adventure, which is not a secret to its leaders.

More importantly for the long-term implications - is there any evidence of the probability of evolution of DPRK, provided its security is guaranteed and national sovereignty is not challenged?

In other words- can the paradigm of the regime change without the change of political elite?

Plenty of recent data, at least acquired by Russian experts, suggest so. Current North Korean leaders seem to begin to understand the inefficiency of the system as well as in the fact that the population is on the threshold of its patience. They come to realize at least some change is necessary. In fact, unlike former East European socialist countries, where evolution proved to be impossible it does not look like something unreal in the DPRK simply because this country today in its essence is not socialistic, but a bureaucratic monarchy (or theocracy).

Since the beginning of the 1990s the leaders of North Korea started to transfer accents from Marxism-Leninism postulates to the traditional Confucian and feudal-bureaucratic ones, appealing to national traditions and history ( promoting the thesis of inheriting the legacy of the ancient Korean states, of the legendary father of Korean nation Dangun- whose newly built tomb was a venue for a joint North-South celebration in October, 2003, reviving the traditional holidays such as Lunar New Year and Chusok ) A clear sign of resurrection of Confucian values was Kim Jong-Il's three years' mourning following the death of his father Kim Il-Sung. A new concept of state ideology is now the "creation of a powerful state"- not in fact specifying what kind of social-economic system should be the basis for such a state.

However for Kim Jong Il any change is a task made twice as difficult, because he could not openly revise the heritage of his father (although sometimes he tried to - say, he apologized before Japanese for kidnapping incidents). After consolidating his power base in late 1990-s he chose not to risk disorder in the established power structure. But coming out of the isolation, bridging the gap with the South Korea, pursuing normalization of relations with Japan, European Union, Australia, attempts of economic reforms, creation of an "open sector" in the economics, Kim clearly showed where the vector of his interest is directed.

However, how in the realpolitik world of the Gulf War and Yugoslavia could Kim Jong-Il from the onset of his rule forget about strengthening of the military component - containment against the foes, which could make use of the period of changes to overthrow his regime? He is always reminded of that by the conservatives in his retinue, who are afraid of a repetition of Gorbachev's experience and lose the decisive competitive edge - inner unity. Of course, Kim Jong-Il wants to keep his power and the state. He is neither Nero, nor Louis XY, who said- `aprХs moi - deluge'. But does that necessarily mean that he, known for his interest for bourgeois life, would see the "barrack-room socialism" socialism as an ideal? More likely he would see as such "an enlightened monarchy" or authoritarian state, (resembling a mix of Brunei, Malaysia, South American states and Park Jung Hee's South Korea or some of the Central Asian states) - a more attractive option for making his nation independent and accumulating at least minimum wealth (the source of which would be extremely cheap and sufficiently qualified labor force).

After a lengthy and cautious studies of the international experience of reforms, first of all in China, Russia, Vietnam, in July 2002 Pyongyang made a number of important - even though naОve and insufficient from the point of view of the modern postindustrial market economics - steps to broaden of use of market levers. Starting the reforms, Pyongyang hoped for improvement of its position in the world and not for the confrontation with Washington. Most importantly, it probably believed the rapprochement with Japan would bring in the "compensation" money and dИtente with the South- capital and technology.

The rationing system was de-facto abolished. Directors of the enterprises were given broad rights to vary wages of the employees and to apply other means of material stimuli, peasants were given the opportunity to engage in individual labor activity. Limited convertibility of national currency was introduced.. In Autumn of 2003 Pyongyang introduced de-facto floating rate of won, Although that means accepting the hyperinflation (more than 400% in a year elapsed after the start of the reforms), this is the indicator that the market mechanism has started to develop. New legislation was adopted in September 2003 by the Supreme People's assembly, providing for more commercial activities of the populace. New free markets were opened in Pyongyang, and they are trading not only vegetables as in the past but also by manufactured household goods, much of them coming from China carried by what Russians called "shuttle merchant". Lots of bicycles have appeared in Pyongyang and the first-ever ads offer even locally-assembled Pyonghwa cars (they are made at the facility, invested by Rev. Moon's business empire). A new technocrat prime-minister- who was on a mission to the ROK late last year to study South Korean economy along with several technocrat ministers were appointed in September 2003.

Cooperation with South Korea is becoming the major driving force of the reforms. North-South cooperation survived the nuclear crisis and even flourished. South Korean investment in DPRK amounted to US$1.15 as of August 2003. The project of industrial zone in Kaesong was officially inaugurated on June 30th, 2003 as a first step to creation of an "economic community" of the North and the South. Connecting the resorts of the same mountain chain: North-Korea Kumgangsan and South-Korean Seoraksan may become a territorial linkage. Another grand project - joining the railways of the North and the South of Korea then coming to the Trans-Siberian Railroad (Transsib) is progressing despite the grudge of the military on both sides of DMZ (official ceremony of the beginning of the railway traffic through DMZ took place on 14 June, 2003). The start of inter-Korean integration is already a fact of life and a factor to be increasingly reckoned with.

In fact DPRK economy has already changed from a centrally planned socialist type to a mixed type, combining state sector, capitalist sector (Joint ventures and trading companies), semi-private sector (especially in agriculture and services) and "shadow" (criminalized) sector. And there is no way back.


How could North Korea change in a longer perspective? Most probably the transformation would be a mix of Chinese, Vietnamese and Russian experience with certain North Korean flavor.

First, the changes already started in the economic domain would evolve to transform the very nature of the state.

Creeping privatization of the state property with the blessing of the higher authority could be a start of a change in political superstructure. Main power bodies (military, party, local, secret services) and their top-managers could benefit. Kim Jong Il's personal know-how might be giving the right to use the facilities and eventually property rights to military and security service's leaders, which in turn would guarantee stability of the regime. The result would be creation of economic conglomerates resembling South Korean "chaebols" but with the greater role of the state. They would bring the economy out of the permanent crisis by attracting foreign (and first of all South Korea) capital and becoming export-oriented employing the most important resource the country boasts- cheap and disciplined workforce.

That would create a new ideological and political reality. Nationalistic ideology, based on exclusiveness of Korean nation, would probably become a basis for legitimacy of Kim Jong Il's clan power as well as for deeper integration with South Korea. The new (or, rather, old) elite would combine political power through the political and security institutions with economic power through semi-privatized economic entities. This is, of course, a far cry from a real democracy, but a step forward from a totalitarian dictatorship. The life of the populace wouldn't improve overnight - but it would stop starving, and the transfer wouldn't be turbulent. Receiving a certain amount of economic freedom and being constantly brainwashed for generations (don't forget the Confucian tradition of reverence to state) , North Koreans, seeing their life improving, probably would not oppose these processes. The heir of Kim Jong-Il (and he or she, under the North Korean tradition should be nominated now) in 15-20 years from now would reign a completely different country - with mixed government-capitalist economics and a strong state sector, not truly democratic, but not less acceptable for the world than many current Islamic, African or Central Asian states.

This new North Korea would have much closer relations with the South, and its economy would be inseparably connected with the South Korean one. That would provide for far more stability on the peninsula and for the rise of mutual trust based on strong nationalistic sentiment. And after a change of a couple of generations, when the new ones would not have the personal grudge, stemming from 20th century hostilities, against each other, unification of Korea could be on the agenda. At the initial stage it could take the form of a confederation or a commonwealth of the states and then - develop at circumstances.


What are the Implications for the Nuclear Crisis Solution?


To put it in a nutshell, the root of the nuclear crisis lies in the conflict of two concepts- that of regime transformation and that of regime change. The US Republican administration opted for not simply tougher, but principally different course in comparison with its predecessor.That was seen by Kim Jong Il as aiming at regime change. He might have supposed that the perspective of rapprochement of the two Koreas could endanger strategic interests of the USA in North-Eastern Asia including containment of China and control over Japan. On the contrary, a local crisis could offer a valuable opportunity to engage China in a new international system of crisis management under the American guidance. North Koreans suspected that for the US hawks, the aim was two-fold: first, to avoid discussing US own violations of a number of clauses of the Agreed Framework - instead, accusing Pyongyang in breaches of it, and to torpedo the agreement itself, and, second, by isolating and weakening North Korea to prepare conditions for an eventual regime change.

When confronted in October 2002 by the accusations in a clandestine uranium enrichment program, Pyongyang saw it only as a pretext for unwinding the spiral which would eventually lead to its demise, simply a casus belli. North Koreans decided to create ambiguity with the single aim of forcing the Americans agree to a negotiated compromise: they stated that they "could own not only nuclear, but also a more powerful weapon" to oppose the American threat. Contrary to what is publicly believed they never "confessed" of existence of any uranium enrichment program and no evidence has emerged since. Now even the CIA grudgingly admits it is "not certain there even is a uranium enrichment plant"[in North Korea] in the first place. In reality at that moment the DPRK probably had only plutonium produced before 1994, which the US knew about before. North Koreans acted basing on the experience of interaction with the administration of Bill Clinton, to whom, in case he would have come to Pyongyang, Kim Jong-Il allusively promised to "hand in" the WMD program inherited from his father in the broader framework of his country transformation. But they miscalculated - and in fact had no other choice, as bowing to the pressure would have meant beginning of the end.

At that point of time any concerns about North Korean nuclear program might have been solved through negotiations. If the negotiations aimed at finding out the truth and to returning to the process of USA-DPRK normalization would have started right away, today we would not only forget about the nuclear program, but, probably would have a breakthrough in relations of the DPRK with the international community, active cooperation with the South, far-reaching economic reforms, etc. But events took another turn, that of "cornering" Pyongyang, although it was clear from the start, that the medicine, prescribed by the hawks, is worse than the ailment itself.

Can the diplomacy work now? The multilateral dialogue, in the logic of Pyongyang's own conservatives, was meant to serve only a "diplomatic cover" for Washington's preparations for a hard-line scenario, with the aim to assure allies and hesitating that there is no other way to solve the problem with intractable Pyongyang. But Kim Jong Il decided to have a try - at least to learn, what could be achieved by diplomacy.

But what is suggested by the US now (multilateral written assurances of security) might be too little, too late. Politics is the art of possible. Usually we have to agree not on a best option, but to the least worst. And such an option today- unlike a year ago - might be a responsible North Korea- but still with a limited nuclear capability. Does Pyongyang aim to continue the nuclear program using the lack of control and verification as the negotiations would slowly progress? And more important: is Kim Jong-Il going to keep the whatever nuclear devices he has as a deterrent and make the world regard the DPRK as a nuclear power, even if he agrees to tore down the production facilities and exercise restraint in testing the nuclear weapons, let alone exporting it?

Explaining Pyongyang's thinking it should be taken in account that even the absence of the plans of direct invasion in the DPRK, stressed by American officials, changes little in its eyes. North Koreans see the cause of the undesirability of a military solution for the USA in its unacceptably high price because of the damage from the counter-strike from the DPRK. But, Pyongyang may fear, US could try economic and political blockade to "stifle" the regime, or try to undermine it through demands of openness and democratization. Under such a logic even a "non-aggression treaty" is not a sufficient guarantee- only a "physical deterrent" can be regarded as one - both for containment and as a bargaining chip. Kim Jong Il might have irreversibly decided to obtain and keep the nuclear deterrent at any cost.

That would mean that the world community could be de facto offered to accept a new type of relations with North Korea, similar to those with India and Pakistan. In this case the DPRK will have to exist -at least for some time- in isolation and in the conditions of more or less sharp confrontation with the whole world, but Kim Jong Il might consider that kind of existence better than total annihilation of his state.


How is it possible to minimize the negative fallout under such a scenario, provided we see a catastrophic military solution as unacceptable? It should be noted, that Russia, using its capabilities of interaction with Pyongyang and its own assessments, developed a concrete plan of step-by-step synchronized measures for defusing the crisis, known as "package deal" as long ago as in the end of 2002 and handed it in January 2003 to the North Korean leaders and after this to the USA. Is such a deal still possible under these new, more challenging and gruesome, circumstances? Unfortunately, yes. Unfortunately because the terms of such a deal would be much worse for the cause of non-proliferation and DPRK itself, than a year ago. North Korea might insist on keeping its existing (even if imaginary) nuclear devices while pledging to forego all future nuclear programs and even discontinue production of other types of WMD and/or their deployment and exports. Would the world be ready to buy such a solution? Certainly not at once. But the choice all the same boils down to an alternative - war or a compromise. Blockade and isolation, sanctions and pressure on Pyongyang are not a final decision: it is just a prelude (more or less lengthy) to either of these choices. And a compromise is probably to be found before the US Presidential elections.

What has changed from a year ago is that now a multilateral mechanism have emerged which can become an important framework for the regional security. The ideal goal of the current 6-party talks (which could be succeeded in years to come by more comprehensive ones) could be described as follows: the DPRK winds up its nuclear program by a verifiable method (nuclear materials and equipment are taken away from the country), maybe, the export of missiles, production of chemical and biological weapons are terminated. The USA in response lift sanctions and embargoes, officially recognize the DPRK, take on itself an obligation not to use force and other means of pressure against it under the UN Charter, as well as provide the DPRK with assistance, first of aimed at meeting its energy demands. The 6-party talks, as some insiders suggest, could even become a nucleus of a future Northeast Asian Organization of cooperation and security, much along the lines Shanghai Cooperation Organization (SOC) was created..If and when a compromise could be found, the crux of the matter is not the essence of the bilateral concessions on the part of the DPRK and the USA, but the international control mechanism of their fulfillment . The experience, including the one of the Agreed Framework showed that bilateral agreements between the two partners that much distrustful to each other need "monitoring mechanism". That would present a window of opportunity for the transformation of DPRK and eventual "fading out" of the Korean crisis.