Courcy’s Intelligence Brief

In the week in which the US has once again emphasized its shift in focus to Asia, mostly in order to balance China’s growing power, there have been some interesting developments on the Korean Peninsula that Washington might find unsettling and that merit careful watching.

The background, of course, is the bedding in of new North Korean leader Kim Jong-un following the death of his father Kim Jong-il on 17 December.  This has been accompanied by a harsh crackdown on would-be defectors, some usual vitriolic rhetoric against South Korea, and (sources in Seoul say) a directive completely forbidding the use of foreign currency in markets.  A report published on 9 January by South Korea’s Sejong Institute also reveals the dire state of the North Korean economy.  An index based on 10 major economic factors such as food supply, electricity production, trade, and the financial situation, which had a benchmark of 100 for 1995, is said to have fallen to 86.5 in 2009 after reaching 104.7 in 2007.  Pessimistically, the report noted: “Even with a full-scale opening policy, it seems too late to provide a driving force for its economy.  It would be impossible to attain economic advancement in a society like the North.”

On the other hand, in the short term, South Korean sources say that the North Korean economy will be stabilized within months because of the rapid Chinese assistance provided following the death of Kim Jong-il.  The seems to provide a counter argument to the suggestion made by the Korea Institute for National Unification (a state-run research centre reporting to the Prime Minister’s office) that Kim Jong-un could face a revolt from the inner circle of power because of his inexperience and youth.

Perhaps the most interesting development, however, has been the debate around South Korean President Lee Myung-bak’s just-concluded visit to China and the prospects for a South Korea-China free trade agreement (FTA).  A ‘key government official’ was quoted on 10 January as saying that the proposed FTA “must be pursued from a national strategic standpoint that bears Korean reunification in mind”.  The thinking is that deepening ties between South Korea and China through an economic pact could provide the path towards reunification.

The attraction for China, says an academic from the Institute of Foreign Affairs and National Security, is that potentially the FTA provides “a chance to overcome Washington’s strategy of encirclement”.  The attraction for South Korea is that if Seoul and Beijing strengthen their economic alliance, then China might no longer take such a passive approach to Korean reunification.

But, as one South Korean government official explains, there is a potential downside for the United States.  He says: “China must be hoping that the FTA with South Korea will cancel out the effect of the Trans-Pacific Partnership between Japan and the US.  It is true that the FTA with China could strain Korea’s alliance with the US.”  A further difficulty for the US is that it would find it hard to openly oppose such an FTA given its strong espousal of free markets.