MORI DOCID 1085294 13 Mg I - Intelligence Report 2 January 1998 cc 0 sum a terican Analysis Exploring the Iniplications of Alternative North Korean Endgames Results From a Discussion Panel on Continuing Coexistence Between North and South Korea An Introductory Note Thel jGroup recently convened a panel of Northeast Asian specialists to further examine some issues that arose from the March 1997 Intelligence Community crisis simulation on alternative Korean endgames In that simulation regional dynamics were examined in response to a limited North Korean invasion of the South a coup attempt and resulting civil war in the North and a peaceful uni cation under Seoul s leadership The specialists panel included former US- policymakers academic experts from leading foreign policy institutes and the Congressional Research Service and both active and retired military and intelligence of cers see appendix A l l This report summarizes the panel s deliberations on an alternative outcome that was alluded to but not explored in the March crisis sirnulation Speci cally the simulation revealed that the optimum Korean endgame from South Korea s perspective would be a gradual process of reconciliation leading to eventual reuni cation on South Korean terms without unacceptable economic consequences Consequently the panel was asked to consider both the potential for reconciliation and the implications of a potentially prolonged period of competitive coexistence between the two Korean 7 4 states - APPROVED FOR RELEASE DATE 2 00 4 Neither the panel s deliberations nor this report are intended to predict the future - course of events on the Korean Peninsula Rather the panel s discussions should be viewed as an interactive effort by the participants to identify key factors that need to be considered in assessing the prospects for or against the possible continuation of a grants a lie at sea sauna ragga - ma MORI DOCID 1085294 2 variant of the status quo in inter-Korean relations Nevertheless the panel s perSpectives along with the March crisis Simulation serve as a tool to enhance our understanding of the political military and economic dynamics at work on the-Korean Peninsula as well as to gain insights into the policy decisions facing the moKoreas This report is prepared by from the Of ce of Transnational Issues and the Of ce at A51an PalelC and Latin American Analysis Comments and queries are welcome and may be directed to A MORI DOCID 10852 94 Mt 5 Exploring the Implications of Alternative North Korean Endgamest 7 Results From' a Discussion Panel on Continuing Coexistence Between North and South Korea Summary The fundamental variable in assessing the Korean endgame is the question of time Will there be a gradual peaceful reintegration on the peninsula as preferred by South Korea and the other involved powers ConVersely will North Korea be able to preserve itself as an independent state for a prolonged period thereby deferring the complex issue of reuni cation Or is the regime in the North more likely to collapse following a near tenn failure of its attempts to muddle through Cl On balance the sense of the specialists panel 'was that given the multiple problems confronting Kim Chong-il s regime there may be only a brief windowof time to consider how' to cope with the probable reality that the North will experience a hard landing The prospect of achieving either a soft landing or even a no landing scenario appears illusory without a regime change in the North The panelists agreed that a number of factors lend credence to the prospect that the near-Item future on the Korean Peninsula may be Characterized by a continuing unstable coexistence between the North and the South - Ibere appears to be no signi cant threats to him Chang-it s ability to stay in command and the leadership shows no signs of losing its political will to stay the course - Most important North Korea continues to be able to leverage outside concerns about the potential negative consequences of regime collapse to obtain a minimalist package of survival support 0 Even before its current economic crisis South Korea preferred the perpetuation of separate regimes because of the high costs of accelerated reuni cation The other regional powers nd it dif cult to contemplate an alternative to the status quo and appear to prefer to help the North muddle through El A condoning period of competitive coexistence also appears more plausible than achieving the reconciliation envisioned in the 1991-92 inter-Korean accord or North Korea s risking signi cant systemic reforms and opening to the outside --A n- n w MORE DOCID 10852941 Wt 0 Problems militating against reconciliation include the North s claim to - represent the sole legitimate power on the peninsula and its likely continuing foreign policycompetition with the South 0 The policy changes that would required to induce substantial external aid and investment are unlikely to be made because Kim views major economic reform as threatening his regime s viability While acknowledging a variety of factors that could prolong an independent North Korea the overall sense of the panel was that the Kim regime cannot remain viable for the long term Although panelists views were split the majority doubted the current deteriorating status could persist beyond ve years The steady seemingly irreversible economic degradation in the North cannot be stanched by minimalist sustainme'nt aid the current situation in North Koreaxappears beyond corrective actions that do not fundamentally threaten the regime s viability 0 Although the timing is uncertain the prospect seems strong that the Kim regime s refusal to reverse course in favor of major reform could generate some catalyst that will lead to its collapse l l The panel saw no viable alternative beyond condoning ongoing efforts at pursuing tension reduction but the participants pessimism raises the legitimate possibility that a prolonged period of coexistence with the present regime in the North may not be sustainable consequently the problem of re ning and coordinating contingency plans for the collapse in the North would appear to pose a more urgent challenge to South Korea the United States and Japan 0 In the panel s view a major challenge to Washington will be reassuring Seoul that prudent planning for a worse case outcome does not imply a lessening of the US commitment to support any opportunity to resume inter-Korean dialogue - The panel assessed that the United States and South Korea are entering a critical juncture on the peninsula that will be de ned by a period of instability and uncertainty The interaction between Seoul and Washington in dealing with a possible hard landing in the North will have a critical effect on US influence with a future uni ed Korea Indeed in the panel s View coping with the challenge on the Korean Peninsula is likely to be the de ning issue in tetrns of the US ability to continue to shape the security environment in Northeast Asia - - we MORI DOCID 10852 94 Exploring the ImpliCatiuns of Alternative North Korean Endgames Results From a Discussion Panel on Continuing Coexistence Between North and South Korea 3 Reconciliation Versus Competitive Coexistence An Overview Despite a broad consensus that political implosion etetnming om irreversible economic degradation seems the most plausible endgame for North Korea a panel of Northeast Asian specialists agreed that a case could be made that a near-term collapse of the regime is not inevitable An ultimate reuni cation of the Korean Peninsula on South Korean terms possibly could be preceded by a period of muddling through characterized by a continuing unstable competitive coexistence between the two Korean states Achieving a more stable longer lasting confederal arrangement between the two Koreas however would appearunlikelywithout a leadership change in the North In the view of the panel of participants in an Integrated Regional Threat Group sponsored discussions examining alternative endgames a period of competitive coexistence could see Continuation of modest'economic reform in North Korea Possible resumption of inter Korean dialogue on noncore issues Intermittent provocations by the North aimed at gaining increased external assistance and or negotiating advantage Demonstrations of tactical exibility in the North s competitionwith the South in relations with the United States China and Japan Competition to maintain the upper hand in managing inter-Korean relations and garnering external support would not necessarily lead to an increased North Korean military threat to the South but also would unlikely lead to a genuine reconciliation The sense of the panel was that a continuing period of competitive coexistence is more plausible than a breakthrough in implementing the 1991-92 inter-Korean accord or North Korea s risking signi cant reforms to address its systemic weaknesses I The The Agreement on Reconciliation Nonaggression and Exchanges and Cooperation Between the South and the North was concluded on 13 December 1991 and entered into force as of 19 February i992 Similarly the Joint Declaration of the Denuclearization of the Korean Peninsula entered into force as of 19 February 1992 However efforts to implement the two agreements broke down in less than a year l l 394% MORI DOCID 1085294 panel was unable to establish an agreed time frame for how long a state of competitive coexistence might continue Opinion ranged from as few as 2 years to possibly as long as 10 years but most participants seemed uncomfortable with the notion that North - Korea could muddle through for more than 5 years The North effectively has becomea beggar state living on a thin drip lifeline of external assistance Panelists were split over how many years a minimalist sustaimnent package would be practicable given the massive inef ciencies that are strangling the economy see appendix B Some panelists commented that economically North Korea could do a little and bene t a lot in terms of reform and infrastructure modernization however no individual reform would be free of social and political risk Other panelists noted that even with 10 years of moderate aid the economy would not be sustainable without external assistance On balance however the majority of the panelists agreed that North Korea under Kim Chang-ll would not be willing to effect the policy changes necessary to attract more substantial assistance and investment because of the threat the attendant opening of North Korean society would pose to the regime s control Most panel participants felt that reform measures such as creating free trade zones and allowing small market interactions have been too little tooalate and that the current situation in North Korea- appears beyond corrective actions that do not fundamentally threaten the regime s legitimacy and viability Some participants cbmmented that irrespective of the absence of broader policy changes under Kim Chang-i there may be a way to negotiate with the North an expanding series of tension reduction steps- to supplement the requirements in the Agreed Framework in return for South Korea and the involved powers providing enough aid to allow some iniprovement in the North Korean status quo a staged weapons speci c road map could be devised for example requiring the North progressively to eliminate chemical and other weapons for aid - Conversely other participants argued that the price for substantial tension reduction more likely would be a multiyear multibillion aid and investment package that South Korea as the primary involved party has neither the resources nor the political _will to implement Some panelists noted that without tension reduction or reform in the North there is a problem of political sustainability in justifying a long term continuation of aid suf cient to prop up a brutal North Korean regime but inadequate to ameliorate the suffering of the North s populace D 2 One participant pointed out that we do not know the degree of resistance by Kim Chung-i1 to fundamental policy changes In particular we do not know what his reaction would be if faced with the choice of I implementing basic changes or being eliminated as the leader Therefore the possibility should not be overlooked that Kim would accept change as have leaders in other countries who have faced challenges to their political survival MORI DOCID 1085294 Given theses considerations the overall senseof the panel was that while a period of continuing competitive coexistence may be plausible it would be a period of instability and uncertainty without the prospect thatthe North will be persuadedto make a substantive commitment to structural reform or to give up leverage by reducing its military threat _Factors in North Korea s Near-Term Survival Although the majority of the panel saw no prospect that the Kim Chong il regime would initiate the Systemic adjustments necessary tomaintain the long-term viability of North Korea all agreed that there are a number of factors that could perpetuate a deterioratingu-istatus quo Domestically there are no signs of instability that appear to directly threaten a dei ed Kim Chong-il s ability to stay in command 3 Moreover the regime derives its ideological legitimacy from its mission to unify Korea and not from its ability to perform economically - Echoing arguments made in China and Japan participants said that the argument can be made that despite overall economic deterioration the North can weather its dif culties for some time at the near-subsistence standards to which the people are accustomed Although the national economy is not self-suf cient it was pointed out that the low levels of domestic consumption and the essentially localized system of self-suf ciency in manufactured goods consumed by North Koreans provides a buffer for the central re 'ime and gives it some degree of exibility in meeting its foreign exchange needs Some panelists also pointed out that while the North cannot become self-suf cient it needs only about an additional $300 million a year in hard currency to meet its needs for food and other critical items and may be able to meet this need from a number of sources P yongyang earns some money for example from military sales drug smuggling counterfeiting providing cheap labor to Russia and selling air rights to foreign airlines Most important North Korea has been able to leverage outside concerns about the negative consequences of catastrophic collapse to obtain a thin lifeline of survival support These varied sources may be enough to cover the most desperate shortfalls and allowthe North to muddle through Another factor that may prolong regime survival is that the leadership shows no signs of losing its political will to stay the course Several panelists'pointed out thatthe disarray confusion and social and economic breakdown in the former Soviet Union and elsewhere has been viewed as proof of the wisdom of North Korea s version of socialism However delusionary Kim Chong-il appears to have concluded that the 3 Some panelists note that the fact the regime relies on coerCion rather than popular support is a sign of its potential fragility Others howevar pointed to the survivability of a number of coercive authoritarian Third World regimes MORI DOCID 1085294 -%et North Korean system has been managed correctly in terms of regime survival and that collapse in the former Soviet Union stemmed from the absence of the firm guidance of a great leader and an erosion of ideology Other panelists pointed out that the North faces a catch 22 dilemma-that reinforces the regime s will to continue to seek to survive by adopting policies for procrastination North Korea under Kim Chong-il has no choice but to defend its system To concede that North Korea s socialist experiment has failed would be a blow so devastating that it would be unbearable to admit such failure South Korea s current nancial turmoil is likely to reinforce Kim s determination to maintain the illusion that yongyang s system is in nitely superior to Seoul s system particularly in terms of defending Korean sovereignty -4 CI The effort to sustain the illusion makes North Korea s isolation a crucial requirement for its near-term survival If North Korea were to alter course by tackling its systemic problems and adopting policies designed to attract substantial outside investment and assistance the regime would likely have to face implementation of the 1991-92 inter- Korean agreement which in turn would likely pave the way for the North Korean regime s demise inthe long run Externally the panel neted that the South Koreansu While not forsaking the goal of eventual uni cation prefer the perpetuation of separate regimes because of the high costs of reunification 5 Even before the current economic crisis it was unclear whether South Korea could manage the consequences of a North Korean collapse DesPite government contingency planning South Koreans have been concerned by the prospect of massive movements of people as well as uncontrollable demands for economic aid and the legal administrative and political problems of absorbing a large and economically backward North According to a number of Korean scholars South Korea s fear of losing control over i the situation once the uni cation process starts is real Some panelists pointed out that the persistence of regional animosities in the South has aroused some concern that South Korea may not be able to survive the vortex of national uni cation CI The panel also noted that China s apparent determination not to allow North Korea to simply collapse could bea crucial factor in prolonging the Kim regime None of the panelists anticipated a subStantial Chinese aid program but they presumed China will continue to be willing to provide enough resources to allow North Korea to maintain its existence as a separate but weak state While allowing that the current nancial 4 Some participants pointed out that there apparently are of cials in the North who recognize the need for major reform But those of cials who understand the dynamics of South Korea the United States and the international environment are not in positions to decide 5 One panel member noted that there are over 20 differen estimates of uni cationcosts for over 10 years ranging from $400 billion to $1 2 trillion MORI DOCID 1085294 if situation in both South Korea and Japan introduces signi cant uncertainty some panelists argued that Japan could provide more aid in conjunction with reopening normalization the North and that movement by Tokyo could overcome Seoul s reluctance for more albeit limited economic involvement with the North Finally the North isbene ting from its participation in the KEDO arrangement to supply light-water reactors and in programs with international agencies to provide humanitarian aid I Can the Two Koreas Reconcile The panelists saw a number of problems militating against a genuine reconciliation between the two'Koreas First the North Korean state s internal logic is based on its central claim to represent the sole legitimate power on the peninsula and its orientation toward reuniting the Korean people under an independent socialist state This is an historic claim and given that perforinance based legitimacy cannot be obtained the regime s ideological underpinning would be eliminated if it abandoned its commitment to reuni cation Some participants likened the situation to that in East Germany where the regime also relied on ideology as a legitimating factor and thus could only resist change or collapse it could not reconcile A second related problem is that many panelists felt reconciliation would require economic rejuvenation in the North to replace the loss of ideological legitimacy But as noted major economic reform is not seen as a viable option for the North because it would undermine the regime If Kim Chong-il were to die or be removed a new regime could conceivably commit to economic reform but the panelists felt that such change would be dif cult unstable and full of uncertainty - - A number of participants argue that a leadership change would be less likely to lead to economic rejuvenation than to a leveraged buy-out or to Chapter ll-style receivership by the South Others noted that leadership change would require extensive dc Kimization of the political system that would be dif cult to achieve and that would raise more questions about the basis of legitimacy of the new regime 'The fact that the primary investment needed to rebuild the North s economy would have to come from South Korea also would undercut a new leadership s ability to claim performance- based legitimacy Consequently instabilitywould persist as questions would be raised as to why there would be a need for a separate regime in the North l l A third problem is that a reconciliation could entail unacceptable migration problems Reconciliation presumably would include expanding rights to travel between the North and South with the likely result that many people would leave the North A mass in ow of northerners who all would have citizenship rights under the South Korean Constitution could create potentially unmanageable tensions on the peninsula MORI DOCID 1085294 Engret Moreover South Koreans already are concerned that the prospect of or 2 million refugees would entail costs that would have to be home by Seonl alone Finally the North s foreign dealings would be problematic during a reconciliation process The North for example could seek to improve its ties with both China and Japan as two of the largest potential sources of economic assistance outside the peninsula A new regime in the North could also be inclined to look to China as a guarantor of its political interests Such efforts could lead to continuing foreign policy competition and heightened concern in the South that the North s regime might emerge as a more important force than wanted by Seoul Implications for the United States From the perspective panelists saw both opportunity and risk in either a near-term competitive coexistence scenario or a reconciliation scenario In both scenarios the United States would continue to have the opportunity to demonstrate its credibility as a regional security guarantor and cooperate with Seoul in ways that may maximize the ability of the United States to retain in uence- including some military presence in an eventual reunified Korea Despite the improved security environment that could be generated by a reconciliation process Seoul also would likely want strong political backing from Washington as well as continued US force deployment as insurance against a breakdown in the process Some panelists noted that Seoul likely would continue to look to the United States to balance efforts by China and Japan to exploit a process of accommodation to increase their in uence on the peninsula Other panelists pointed to the US longstanding support for eventual Korean uni cation as giving Washington leveragein managing tactical strains that are likely to be a feature in either scenario Some participants commented that Washington has an advantage in that'Seoul recognizes that the United States unlike the other regional powers has no geopolitical interest in forestaliing or complicating efforts to achieve eventual reunification'on South Korean terms In terms of risk the panelists primary concern during a period of competitive coexistence was the potential for South Korea to react negatively if- it perceived the United States as moving toward more normal relations with the North without concomitant progress in North South dialogue Despite the South s fear of collapse in the North and the consequences of an accelerated uni cation Seoul s desire to maintain the upper hand in inter-Korean relations could easily lead South Korea to misinterpret the intent behind future US negotiating efforts to ameliorate the situation on the peninsula - The panelists repeatedly cited their perception of growing South Korea s warlness and distrust toward the United States notwithstanding the initiation of the four-party talks 10 MORI DOCID 10852 94 process The depth of South Korea s current economic crisis has generated a sense of vulnerability that could produce a loss of con dence and heightened paranoia in its dealings with the United States as well as the other regional powers Conversely if some form of acconimodative detente were to emerge between the North and South participants commented that domesticpressure could build on Seoul to recon gure or perhaps remove US forces and to limit US involvement in the peninsula Prolonged economic downturn in the South combined with a perception of reduced threat from the North could also have a negative impact on Seoul s ability and willingness to maintain adequate levels of host nation support The panel considered the prospect that during a reconciliation scenario the North might view a continuing US force presence as a constraint on an economically troubled but asymmetrically stronger South Korea The participants concluded however that the North s persistent stand against the evil of a foreign presence on the peninsula was unlikely to be modi ed Finally from the panel s perspective a major challenge for the United States in either a continuing coexistence scenario or a less likely reconciliation scenario would be managing Seoul s perceptions of the degree of Washington s support for the South s approach toward inter-Korean relations In the panelists view a principal risk is that a combination of South Korean frustration stemming from its economic dif culties and its persistent desire to retain control over dealings with the North could lead to South Korean misinterpretations of US actions that ultimately could jeopardize the US position in a postuni cation Korea As in the previous Korean crisis simulation the panelists noted that a souring of US-South Korean relations that imperiled the ability of the United States to retain some form of force presence on the peninsula could pose signi cant strains on the US-Japan security relationship Problems in Sustaining the Status Quo While acknowledging the plausibility of a-variety of factors that could support the continuation of an independent North Korea the overall sense of the panel was that the status quo cannot continue in the long term Many participants averted that the status quo situation is unstable and could be undermined by many different problems The major problem is thatthe economic degradation is continuing making it likely that the ows of n nimalistsustaiument aid probably will not be practicable for more than a few years Some participants noted that the industrialized economy of the North is more like those in Eastern Europe than the more agrarian economies in China and Vietnam Others pointed out that even further agricultural reforms would not as-mm MORI DOCID 1085294 Met enough given the structure of the economy to enable the North to be self-sufficient in foodstuffs Considering the condoning need to import food and energy along with the deterioration in North Korea s industrial infrastructure the panel argued that 1 providing only minimalist sustainment aid will not be able to keep the economy viable The participants noted that a related problem with the continuation of the status quo will be the lack of major longer-term relief packages Japan may not be willing to provide a large aid package given its nancial dif culties along with the likelihood that the North would demand billions in reparations from Japan for its past colonial rule over Korea South Korea lacks the resources and there is an apparent lack of political will in Seoul to provide signi cant aid to the North l l 7 - The participants argued that although China is liker to continue to provide limited aid in hopes of preventing a North Korean collapse Chinese policy toward the North is driven by strategic factors Having failed in its own efforts over a period of years to persuade P yongyang to adopt economic reform China appears to prefer a weak North Korea to a revitalized but recalcitrant North that continues to pose a military threat to the South Moreover providing much more signi cant-aid to the North could risk jeopardizing Beijing s relations with Seoul without necessarily increasing China s ability to modify North Korean behavior Conclusions Although the North Korean regime may be able to prolong itself in the near term no breakthrough in inter-Korean relations is likely to occur unless Pyongyang changes its traditional policy Such a change seems unlikely under Kim Chong-il given his perspective that economic experimentation undermined the former Soviet Union and the communist regimes in Eastern Europe Moreover South Korea s economic crisis is likely to reinforce Kim s perception that his regime can survive by playing on the legitimate concerns of the other regional powers that forestalling collapse in the North remains imperative to averting potential disaster on the peninsula Kim may also conclude that Seoul s economic problems will present the North with fresh opportunities to exploit potential social tensions in the South and to continue to attempt to drive wedges between a less con dent South Korea and the United States Japan and The sense of the Northeast Asian specialists panel was that the Kim regime will not sacri ce its own survival by adopting major reform and consequently the situation on the peninsula is likely to remain unstable and precarious The new South Korean administration may-succeed in restoring some aspects of inter-Korean dialogue but President Kim Tac-chung s confederation proposal contains the same elements that the North has deemed too threatening in the past see textbo'x Even if some resumption Secztk MORI DOCID 1085294 %et 1 of dialogue occurs genuine tension reduction seems remote a'continuing competitive coexistence scenario because P yongyang is unlikely to give up the Ileverage it retains as tit-military threat The powers involved in the peninsula appear to have neither the resources to initiate a major aid and investment program for the North nor the ability to persuade the Kim regime to adopt the policy changes that would be required for such a program Consequently the degenerative economic spiral in the North is likely to continue with no way out Although the timing is uncertain the prospect seems strong that the Kim regime s refusal to reverse course will generate some catalyst that will lead to its collapse 5 Assuming a new regime emerges in the North the panelists felt that it was likely to be unstable and would still have to confront the issue of economic liberalization The participants did not rule out the prospect that a successor regime could pursue a more accommodating policy toward the South There was general agreement however that the goal of a new regMe would also likely be preservation of North Korea s existence as a separate state rather than reuni cation For now the Kim regime is likely to continue to pursue policies of procrastination and the panelists saw little option for the United States and the other involved powers but to continue negotiating with the North while providing minimalist aid packages to avert short-term regime collapse A minority of panel participants noted that there is a cost trade-off issue in terms of whether it is cheaper to cut off North Korea and let the regime die than to keep trying to provide enough aid to let the North get by for a period of years As noted by the majority however the dilemma is that no onelknows what a cutoff of aid would lead to because the North retains the leverage to provoke a variety of crises Although the panel saw no viable alternative beyond continuing ongoing efforts at pursuing tension reduction the panelists pessimistic outlook raises the legitimate prospect that a prolonged period of coexistence with the present regime in the North may not be sustainable On the basis of the participants assessment of the strategic in exibility of the Kim regime and the inexorable economic degradation in the North the problem of re ning and coordinating contingency plans for a collapse in the North would appear to pose a more urgent challenge forSouth Korea the United States and Japan China is likely to continue to be reluctant to discuss planning for a Korean crisis contingency with the United States but the panelists noted that US China relations would be a critical variable because China would be in the strongest position to in uence the outcome in a collapse scenario In the view of the panel the shared 5 A number of panelists felt that a denouernent could be sudden and violent The participants were split however on whether the effects of a regime change could be contained in the North or whether a crisis potemially could pose a military threat to the South MORI DOCID 1085294 Before his election as president Kim Tac-chung reaf rmed the proposal he rst made in 1971 for a three-stage peaceful reuni cation plan The three stages are President Kim Tae-chung s Reunification Formula - Peaceful coexistence during which the North and South form a union of two fepublics linkedby mutual recognition of sovereignty and a mechanism to ensure against aggression - Peaceful exchanges during which of cial delegations hold regular conferences and arrange economic cultural and athletic exchanges to restore mutual con dence and pannational consensus The exchanges would lead to formation of a provisional federation based on the coexistence of separate governments in the North and South Peaceful uni cation which would complete the process of integration Kim Tae chung'distinguishes his proposal from the North Korean federation proposal by stressing the need for both sides to begin the process by acknowledging the independent sovereignty of the other side and by focusing on building mutual understanding and con dence at each stage rather than on speci c institutional - arrangements interest between the United States and China in ameliorating the outcome of the Korean endgame at least provides an opportunity to deepen the dialogue between Beijing and'Washington about potential negative developments on the peninsula 7 Coping with the challenge posed by a potentially unsustainable status quo on the peninsula will be complicated by deepening economic exigency in the South An increased sense of vulnerability and sagging con dence combined with a continuing desire to maintain control in dealing with the North is likely to complicate the process of achieving a coordinated strategy between the United States South Korea and Japan for dealing with a potential hard landing in the North In the view of the panel the South s current economic dif culties p'ose two problems in particular First the arduous task of economic restructuring in the South is likely to make it even more dif cult for Seoul to face the realistic prospect that the North could collapse sooner rather than later Second a key variable in South Korea s foreign relations will be its 7 Following a series of interviews with Chinese of cials in the spring of 1997 Department of Defense consultants Banning Garrett and Bonnie Glaser concluded that a sharp deterioration of the situation in North Korea could lead the Chinese leadership to reevaluate its position of refusing to engage in joint contingency planning with the United States MORI DOCID 1085294 quest for foreign funding that could produce new strains in its relations with the United States Despite the foregoing problems panelists noted the importance of deepening the trilateral dialogue among the United States South Korea and Japan on both the security and financial aspects of the Korean endgame In the panel s view a major challenge for Washington will be reassuring Seoul that its interests will not be jeopardized in any way during the four-party talks process and that prudent planning for a worse case outcome does not imply a lessening of the United States commitment to support any opportunity to resume inter-Korean dialogue In conclusion the panel assessed that the United States and South Korea are entering a critical juncture on the peninsula that will be de ned by a period of instability and uncertainty The interaction between Seoul and Washington in dealing With a possible - hard landing in the North will have a critical effect on US in uence with a future uni ed Korea Indeed in the panel s View coping with the challenge on the Korean Peninsula is likely to be the de ning issue in terms of the US ability to continue to shape the security environment in Northeast Asia 15 MORI DOCID 1085294 Swe Appendix A Panel Discussants Rear Admiral ClarcHCe USN ren Mr Mel Chaloupka Chief Gaming and Simulation US Paci c Command Asst Defense Intelligence Officer EAP Professor Don Danie US Naval War College Nicholas Eberstadt Visiting Scholar American Enterprise Institute Fritz Ermath Former Chairman p National Intelligence Council Robert Fauver - National Intelligence-Of cer for Economics CIA Brigadier General Thomas 0 Fleming ret Former Deputy Director for Strategic Planning and Policy US Paci c Command Ambassador Chas W Freeman Jr Former AssiStant Secretary of Defense for International Security Affairs I HM - Richard Kerr Former Deputy Director of Central Intelligence - - n-urmmvanmuun wean-mu- - - -- - - DOCID 1085294 Paul Kreisberg Woodrow Wilson Institute Professor Kenneth Lieberthal University of Michigan Robert A Manning Council on Foreign Relations James McCullough' Institute of International Studies University of South Carolina Rear Admiral Eric McVadon USN rct Former Defense Attache to China Jonathan Pollock Rand Corporation Daryl Plank Heritage Foundation Janies Heritage Foundation Professor Robert Ross Boston College Shin Rin sup Congressional Research Service from CIA This appendix is l7 MORI DOCID 1085294 AppendixB North Korea s Dim Economic Prospects North Korean industrial and agricultural output continues to fall Average industrial operations in November 1997 Were down to less than 15 percent of capacity Only portions of one or two facilities are now operating in major mdusmes such as steel and cement The fall grain harvest was just 2 9 million metric tons according to CIA estimates down 5 percent from last year and far short of the 4 5 million tons the North needs to meet even minimal rations l P yongyang cannot reverse these declines with its own resources 0 The North s industrial capital stock is nearly beyond repair as a result of underinvestment Spare parts shortages and a lack of maintenance 0 - Exhausted soil a lack of arable land and shortages of fertilizers and a other agricultural chemicals all constrain agricultural output The only area of growing economic activity is'the informal sector rmanent daily markets now open in most major cities inc 1 seven in yongyang Some are of cially managed and feature permanent structures such as entry gates other unof cial street markets are springing up in adjoining ther private commerce such as trade in cigarettes and alcohol at makes stan outside Pyongyang Collective farms have also been allowed to retain more of their crops to trade on markets 9 1 ese private sources of food and on are rep acmg a e-con olled economy as the major source of subsistence for many North Koreans - The primary bene t of markets is more ef cient distribution of goods which helps improve access to staples the impact on production has been low mostly because of limited arable land and the lack of private manufacturing facilities P yongyang s prospects for receiving moderate levels of food aid in the coming year are good Political factors however will determine whether the North will once again just scrape by or be in a position to improve nutritional conditions i - Aid from China is almost certain Beijing provided the North with nearly 800 000 tons of grain and our this year much of it aid 18 MORI DOCID 1085294 Ml Chinese of cials have said Beijing gives a minimum level of support to the North to avoid the chaos that would accompany a regime collapse 0 International relief is highly likely The World Food Program plans to appeal for 700 000 tons of aid up from about 300 000 tons this year Aid from South Korea or Japan is less certain Seoul s nancial problems will make it more politically dif th to provide assistance even though Pyongyang agreed to four-party plenary talks and is hinting at possible North-South initiatives after a new administration takes power Japan has substantial grain reserves but continues to withhold large-scale aid in an effort to extract further political concessions on bilateral issues Likely Chinese assistance and international aid would result in a food situation similar to 1997 deaths from malnutrition and related disease would be common but most privileged groups including Pyongyang the military and the security services- would receive suf cient food Aid from South Korea and Japan could allow P yongyang to improve nutrition for the rst time in years This document is from the holdings of The National Security Archive Suite 701 Gelman Library The George Washington University 2130 H Street NW Washington D C 20037 Phone 202 994-7000 Fax 202 994-7005 nsarchiv@gwu edu