The surprise announcement that North Korea and the US agreed on 31 October to a resumption of nuclear negotiations will postpone additional escalatory behavior by Pyongyang and reduce tensions in the region. The six party talks will remain dogged by previously irreconcilable differences, however, and are unlikely to resolve the nuclear impasse. The US and Japan will maintain economic restrictions on North Korea but will be hampered in gaining regional acquiescence to forcefully implementing UN Resolution 1718. A failure to achieve strategic objectives would eventually lead Pyongyang to resume provocative behavior, which the US and Japan will use as justification for more punitive UN resolutions.
Pyongyang's decision was both a response to increasing economic pressure and a calculation that it could best obtain its goals by temporarily switching to conciliatory diplomatic tactics. US-led restrictions against North Korean illicit activities, including counterfeiting and money laundering, have significantly impacted the regime's economic well-being. Moreover, foreign banks and companies are increasingly wary of engaging with North Korea even on legitimate business transactions for fear of later being designated by the US as being complicit in illegal transactions.
During the past year, China has been increasingly willing to pressure its recalcitrant neighbor. In September 2005, two Chinese banks froze assets affiliated with North Korean organizations suspected of being involved in WMD proliferation or illicit activities. Additional Chinese banks imposed restrictions on North Korean financial transactions following Pyongyang's July 2006 missile launches. China also cut off fuel deliveries to North Korea during September.
Kim Jong-il likely assessed that transferring the nuclear issue from the UN Security Council to the six-party talks would avert additional international sanctions, hinder US efforts to gain Chinese, Russian, and South Korean concurrence to firmly implementing UN Resolution 1718, prevent Beijing and Seoul from joining the proliferation security initiative, and allow for a resumption of Chinese and South Korean economic benefits. Seoul announced it may resume humanitarian aid and Beijing may have agreed to provide North Korea with a significant benefits package conditioned on a return to negotiations. If North Korea follows historic negotiating patterns, it will attempt to fortify its bargaining position and extract maximum concessions by delaying the resumption of talks and determining the agenda. Pyongyang has stated that it expects the negotiations to first "address and resolve" the international sanctions while Washington expects denuclearization to remain the predominant focus. Secretary of State Condoleezza Rice emphasized that North Korea should show its intent to abide by previous obligations by shutting down the Yongbyon nuclear reactor and re-admitting IAEA inspectors. Japan has demanded that North Korea must first renounce its nuclear weapons, but Pyongyang will not do so and Tokyo will face heavy pressure to return to negotiations.
A resumption of six-party talks will merely return the combatants to the negotiations arena where they will resume their bouts over contentious issues, such as the sequencing of benefits for North Korea abandoning its nuclear weapons programs and the requisite verification regime. Significant progress in the six-party talks is not likely. Indications of US flexibility last year were followed by a more conservative approach after the 19 September 2005 joint statement when Hill was forced to protect his flanks against attacks by neo-conservatives within the administration, Congress, and media.
North Korea's seeming reasonableness by returning to six party talks will encourage Beijing, Moscow, and Seoul to press Washington to reduce its negotiating demands as well as resist US entreaties for tough enforcement of the UN Resolution-required trade sanctions. The US will be unable to convince South Korea to engage in any meaningful punishment against North Korea. South Korea will remain conflicted in its response amid internal debate over its engagement policy toward Pyongyang. President Roh Moo-hyun's initial stern response was met with fierce resistance by legislators. Seoul has since rebuffed US requests to cancelthe Kaesong and Kumgangsan joint ventures and distanced itself from initial pledges to increase involvement in the Proliferation Security Initiative.
Seoul was encouraged by the relatively minor market reaction to the missile launch and nuclear test, but remains extremely nervous over long-term impact on investor confidence. Senior officials have warned that a resurgent crisis or lingering investor uncertainty will further weaken South Korea's sluggish economic recovery. Foreign direct investment has declined during the past two years and South Korean investors remain inclined to look overseas due to President Roh's tentative efforts at necessary economic reform. Renewed regional tensions could make South Korea increasingly less attractive to investors who may choose to bypass the country to invest in other Asian opportunities. South Korea's weakening economic recovery, combined with the more precarious international situation, makes for a more insecure local market that is more vulnerable to political risk than at the beginning of 2006.
Prime Minister Shinzo Abe's vow that Japan would not pursue a nuclear weapons program lowered concerns that the North Korean test would trigger a nuclear arms race in Northeast Asia. Abe will, however, use the North Korean threat to pursue his security policy, including updating the US-Japan security framework, moving forward on ballistic missile defense and amending the peace clause of the constitution. Relations with the US will remain strong while Abe's diplomatic outreach will improve but not repair strained relations with South Korea and China.
North Korea's nuclear test will complicate the six-party talks because Pyongyang will feel it is negotiating from a greater position of strength and will demand greater compensation. It is also possible that North Korea will seek to retain its status as a nuclear nation by retaining some aspects of its nuclear weapons programs. Kim Jong-il will be emboldened by perceptions that Washington does not have a military option, due to the proximity of Seoul to the DMZ, the deteriorating Iraqi security situation and the potential face-off with Iran. The Bush administration will similarly see itself as having the advantage based on North Korea's deteriorating economic conditions and Pyongyang having to abandon its previous condition not to return to negotiations without Washington rescinding its sanctions.
A North Korean failure to gain economic benefits to offset the impact of international restrictions would likely cause a breakdown in six-party talks and a resumption of North Korean threats and high-risk confrontational tactics. Kim Jong-il's range of potential escalatory actions include: additional nuclear and missile tests; resuming nuclear reactor construction to provide additional weapons-grade plutonium; conducting provocative military actions; and shadowing or intercepting US reconnaissance aircraft. Pyongyang may conduct such actions in conjunction with diplomatic entreaties to gain Chinese and South Korean support.
Bruce Klingner is the Korea analyst for Eurasia Group, the world's largest political-risk consultancy. The views expressed herein are his own.