Money for nothing, nukes for free The US North Korea summit: what happens next? A report by The Economist Intelligence Unit

Money for nothing, nukes for free The US North Korea summit: what happens next? A report by The Economist Intelligence Unit

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Contents A telegenic US-North Korea summit 2 How to keep the ball rolling: trading concessions 3 Weakened pressure and economic co-operation 4 1

A telegenic US-North Korea summit The meeting in Singapore on June 12th was the first time in history that a serving US president had met a North Korean leader. In the eyes of both heads of state, holding such a summit is in itself a success, for a remarkably similar reason: good publicity. The North Korean leader, Kim Jong-un, managed to have his selfie taken with Singapore s foreign minister, Vivian Balakrishnan, while on a night-time stroll on June 11th in the city state, and his trip was duly reported in an extended documentary broadcast on North Korean television after the summit. Meanwhile, the US president, Donald Trump, gave some credence to his claim to a Nobel Peace Prize, with a historic handshake with Kim Jong-un in front of a row of neatly arranged flags. Measured against all this publicity, the content of the resulting agreement was secondary to the meeting itself. Mr Trump and Kim Jong-un are both in a position to sell the summit to their respective domestic audiences as a victory and to blame the other for any future breakdown in talks. What came out of the summit was, as The Economist Intelligence Unit had expected, a vaguely worded joint statement on shared commitments towards denuclearisation. With no details given on the process or the timetable, the gap in expectations between the US and North Korea has yet to be bridged, even temporarily. Irreconcilable differences remain between the US and the North on both the pace and the breadth of denuclearisation. US demands for complete, verifiable and irreversible denuclearisation by 2020 the end of Mr Trump s term are at odds with North Korea s long-term commitment to its nuclear programme. Realistically, denuclearisation (which would be a step-by-step programme) will probably require 10 to 20 years of sustained engagement. Although progress on a permanent reduction in tensions and a normalisation of relations is possible, we maintain our view that complete, verifiable and irreversible denuclearisation in North Korea is still in dire straits. Asian supporters Over the short to medium term, we expect South Korea s government to maintain its support for US- North Korea talks, as part of its commitment to improving inter-korean ties. South Korea s president, Moon Jae-in, has showed remarkable statesmanship in manoeuvring the US administration in his country s favour. His organisation of an impromptu second inter-korean summit in May, in sharp contrast to the highly choreographed first summit in late April, helped to bring the summit process with the US back on track. We believe that the South Korean leader will maintain a high level of commitment to the ongoing thaw in inter-korean relations, as well as the diplomatic flexibility required to keep the international momentum going. The engagement efforts will also be backed by China, North Korea s main benefactor. A diplomatically negotiated settlement with the main parties involved in the region would satisfy China s desire to maintain stability in its immediate neighbourhood and prevent the increased militarisation of the region. China will maintain steady support for Kim Jong-un, as illustrated by the recent series of bilateral meetings ahead of the Singapore summit, while also continuing to improve its ties with South Korea. We expect more summitry between North Korea, China and South Korea in the coming months. but one lone dissenter Japan s official response to the US-North Korea summit has been one of cautious optimism regarding the joint statement, framing it as a good start to addressing security concerns in the region. Japan was 2

the strongest supporter of Mr Trump s maximum pressure strategy against North Korea in 2016-17 and has been blindsided by the US turnaround towards engagement with North Korea. In order to regain some diplomatic ground, the Japanese government is now pressing for its own direct talks with the North. However, the summit statement s vagueness over steps towards the dismantling of North Korea s nuclear and missile programmes, combined with Mr Trump s surprise announcement after the summit that the US would cease its joint military exercises with South Korea, will have done little to allay Japan s concerns that the Trump administration may sell its Asian allies short. The US concession on military exercises which Japan has stated are a vital part of East Asian security and US deterrence commitments is significant for Japan for two reasons. First, it signals that the US is weakening its commitment to maximum pressure, well before receiving any concrete signs from North Korea on denuclearisation. Second, this precedent may damage Japan s security and alliance commitments with the US government, as suggested by Mr Trump s complaint over the cost of such exercises. How to keep the ball rolling: trading concessions The absence of specific steps towards denuclearisation in the summit s joint statement did not stop Mr Trump from asserting on social media that there is no longer a nuclear threat from North Korea, a statement backed by the US secretary of state, Mike Pompeo. This view does not, however, appear to be grounded in reality. While the North is now engaged in a cycle of summitry, the fundamentals of its military arsenal have yet to change. The concessions made so far by North Korea include only the suspension of nuclear and missile testing. This pledge of a missile-launch freeze had already been given ahead of the inter-korean talks that took place earlier in 2018. Meanwhile, after the North s sixth nuclear test in September 2017 and the successful testing in November of an intercontinental missile whose range would enable it to hit US soil, Kim Jong-un declared full nuclearisation achieved in December 2017. The announced dismantling Target audience (Range estimates* of North Korea s latest missile test) November 28th 2017 NORTH KOREA Lower limit 8,000km Hwason 10,000km Upper limit 13,000km Sources: IMF; The Economist *Approximate 3

of the Punggye-ri nuclear test site in May 2018, which a handful of international journalists attended, was more a diplomatic gesture of good will ahead of the latest summit than a meaningful step towards denuclearisation, as no international verification or inspection was allowed. Although North Korea has yet to offer anything new beyond the vague commitments to denuclearisation that it has made in the past, at his post-summit press conference in Singapore Mr Trump sided with North Korean views on the joint US-South Korea military exercises, calling them provocative and announcing that he would stop the war games. (On June 19th the US confirmed the suspension of the next annual drill, Ulchi Freedom Guardian, due at the end of the summer.) At the press conference, Mr Trump also confirmed his desire to reduce the number of US troops stationed on the Korean peninsula, framing this as a cost issue. Halting joint exercises is a major concession. The US administration will frame this concession as a pause, meaning that it could be revoked should the North not reciprocate. South Korea s government, which has given its backing to Mr Trump s surprise announcement, offered a hint as to what could come next from North Korea. During recent inter-korean military talks held in the demilitarised zone (DMZ), the relocation of the North Korean artillery to a location 30-40 km away from its current position along the DMZ emerged as a new potential concession. Weakened pressure and economic co-operation Beyond military concessions, it was the economic issue of sanctions against North Korea that was at the centre of the Singapore summit. While the sanctions did not receive a mention in the joint statement, both Mr Trump and Mr Pompeo stated that they remained unchanged and would continue until denuclearisation had been achieved. However, cracks in the policy of maximum pressure, of which sanctions are a crucial element, are already showing. The UN-level sanctions were spearheaded by the US and additional American sanctions were imposed in 2017, but their impact relies on the support of and enforcement by a broader international coalition. The united front on sanctions is increasingly at risk. Its collapse would be another major victory for the North Korean regime, as breaking its economic isolation is a core goal of its diplomatic charm offensive. Following the June 12th summit, China has already suggested that sanction relief should be considered. With China accounting for the overwhelming bulk of North Korea s external trade, the maximum pressure approach would lack significant bite without Chinese support. On June 18th the pressure to ease sanctions was ramped up by South Korea s foreign minister, Kang Kyung-ha. She subtly moved the goalposts closer than the US aim of complete denuclearisation, by stating that sanctions against North Korea would be relaxed once it took substantive steps toward denuclearisation. An easing of sanctions in the short to medium term matters to the South, as the future of the inter- Korean engagement process which focuses heavily on reviving economic co operation depends on it. For instance, UN sanctions on the North (as embodied in the UN Security Council Resolution 237), require the end of all joint ventures with North Korea. They therefore prevent the restarting the two inter-korean economic projects, the Kaesong Industrial Complex (KIC) and the Mount Kumgang tourist region, which in the 2007 inter-korean summit declaration were hailed as promoting balanced economic development and co prosperity on the Korean peninsula. Both sites were closed under 4

South Korean imports from North Korea (US$ m) Composition of inter-korean trade 1,600 1,400 1,200 Total volume General trade Economic cooperation (incl. KIC and Mt Kumgang tours) Non-commercial trade (Assistance) 1,000 800 600 400 200 0 2005 06 07 08 09 10 11 12 13 14 15 16 17 South Korean exports to North Korea (US$ m) 1,600 1,400 1,200 Total volume General trade Economic cooperation (incl. KIC and Mt Kumgang tours) Non-commercial trade (Assistance) 1,000 800 600 400 200 0 2005 06 07 08 09 10 11 12 13 14 15 16 17 (a) Closure of Mt Kumgang tourist zone (b) End of "sunshine" policy with North Korean military aggressions on the South Source: The Economist Intelligence Unit. subsequent conservative South Korean administrations, but the Panmunjom Declaration, issued at the inter-korean summit in April 2018, reaffirmed the South s commitment to the aims of the 2007 statement. We expect a resumption of KIC, potentially by the end of 2018, with the complex benefitting from a UN sanction exemption. More projects are in the pipeline, such as a modernisation of the railways and roads in the eastern transport corridor (an infrastructure project between Russia, North and South Korea), as well as those between the South Korean capital, Seoul, and Sinuiju, a North Korean city at the border with China. Other planned undertakings include a maritime peace zone in the areas around the Northern Limit Line in the West Sea, to prevent accidental military clashes and guarantee safe fishing activities. (The 5

West Sea is a notable tourist destination for visitors to North Korea.) The intention is to finance these projects through the W350bn (US$330m) Inter-Korean Co operation Fund, which was established in 1991 to promote mutual understanding and socioeconomic interaction between the two Koreas. As long as the detente continues, North Korea will seek to take advantage of economic engagement with the South, while benefiting from the resumed support of China, its long-standing economic benefactor. As uncomfortable as it may be for the US and its allies in the region, the post-summit future is likely to continue to include a nuclear-capable North Korea. 6

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