Reports from the Economic Front

This long post examines the causes of and offers a response to the dangerous escalation of tensions on the Korean peninsula.

While the details of U.S.-North Korean relations are complex, the story is relatively simple.  In brief, the U.S. government continues to reject possibilities for normalizing relations with North Korea and promoting peace on the Korean peninsula in favor of a dangerous policy of regime change.  Unfortunately, but not surprisingly, the U.S. media supports this policy choice with a deliberately one sided presentation of events designed to make North Korea appear to be an unwilling and untrustworthy negotiating partner.

As a corrective, in what follows I offer a more complete history of U.S -North Korean relations, focusing on the major events that frame current tensions over North Korea’s nuclear program.  This history makes clear that these tensions are largely the result of repeated and deliberate U.S. provocations and that our best hope for peace on the Korean Peninsula is an educated U.S. population ready and able to challenge and change U.S. foreign policy.

Historical Context

Perhaps the best starting point for understanding the logic of U.S.-North Korean relations is the end of Korean War fighting in 1953.  At U.S. insistence, the fighting ended with an armistice rather than a peace treaty.  A Geneva conference held the following year failed to secure the peace or the reunification of Korea, and U.S. demands were the main reason for the failure.

The United States rejected North Korean calls for Korea-wide elections, supervised by a commission of neutral nation representatives, to establish a new unified Korean government, a proposal that even many U.S. allies found reasonable.  Instead, the U.S. insisted, along with South Korea, that elections for a new government be held only in the North and under the supervision of the U.S. dominated United Nations.  Needless to say, the conference ended without any final declaration, Korea divided, and the United States and North Korea in a continuing state of war.

Up until the late 1980s/early 1990s, an interrelated, contentious but relatively stable set of relationships—between the United States and the Soviet Union and between North Korea and South Korea—kept North Korean-U.S. hostilities in check.  The end of the Soviet Union and transformation of Russia and other Central European countries into capitalist countries changed everything.

The loss of its major economic partners threw North Korea’s economy into chaos; conditions only worsened the following years as a result of alternating periods of flood and drought.  The North Korean government, now in a relatively weak position, responded by seeking new trade and investment partners, which above all required normalization of relations with the United States.  The U.S. government had a different response to the changed circumstances; seeking to take advantage of the North’s economic problems and political isolation, it rejected negotiations and pursued regime change.

It is the interplay of U.S. and North Korean efforts to achieve their respective aims that is largely responsible for the following oft repeated pattern of interaction: the North tries to force the United States into direct talks by demonstrating its ability to boost its military capacities and threaten U.S. interests while simultaneously offering to negotiate away those capacities in exchange for normalized relations.  The United States, in turn, seizes on such demonstrations to justify ever harsher economic sanctions, which then leads North Korea to up the ante.

There are occasional interruptions to the pattern.  At times, the United States, concerned with North Korean military advances, will enter into negotiations.  Agreements are even signed.  But, the U.S. rarely follows through on its commitments.  Then the pattern resumes.  The critical point here is that it is the North that wants to conclude a peace treaty ending the Korean War and normalize relations with the United States.  It is the U.S. that is the unwilling partner, preferring to risk war in the hopes of toppling the North Korean regime.

The Framework Agreement, 1994-2002

The U.S. government began to raise public concerns about a possible North Korean nuclear threat almost immediately after the dissolution of the Soviet Union.  These concerns were driven by many factors, in particular the U.S. need for a new enemy to justify continued high levels of military spending.  Colin Powell, then head of the Joint Chiefs of Staff, explained in testimony to Congress that with the Soviet Union gone, the United States was running out of enemies.  All that was left, he said, was Fidel Castro and Kim Il Sung.

The North had shut down its one operating reactor in 1989 for repairs.  In 1992, the CIA claimed that the North used the shutdown to reprocess plutonium and was now in possession of one or two nuclear weapons, a claim disputed at the time by the State Department.  The North also denied the claim but offered to settle U.S. nuclear concerns if the United States would enter into normalization talks.

The Clinton Administration rejected the invitation and began planning for war.  War was averted only because of Jimmy Carter’s intervention.  He traveled to North Korea and brokered an agreement with Kim Il Sung that Clinton reluctantly accepted.  The resulting 1994 Framework Agreement required the North to freeze its graphite-moderated reactor and halt construction of two bigger reactors.  It also required the North to store the spent fuel from its operating reactor under International Atomic Energy Association (IAEA) supervision.

In exchange, the U.S agreed to coordinate the building of two new light water reactors (which are considered less militarily dangerous) that were to be finished by 2003.  Once the reactors were completed, but before they were fully operational, the North would have to allow full IAEA inspections of all its nuclear facilities.  During the period of construction, the U.S. agreed to provide the North with shipments of heavy oil for heating and electricity production.

Perhaps most importantly, the agreement also called for the United States to “move toward full normalization of political and economic relations” with the North and “provide formal assurances to the DPRK against the threat or use of nuclear weapons by the United States.”

Tragically, although rarely mentioned in the U.S. media, the U.S. government did little to meet its commitments.  It was repeatedly late in delivering the promised oil and didn’t begin lifting sanctions until June 2000.  Even more telling, the concrete for the first light water reactor wasn’t poured until August 2002.  Years later, U.S. government documents revealed that the United States made no attempt to complete the reactors because officials were convinced that the North Korean regime would collapse.

The Bush administration had no use for the Framework Agreement and was more than happy to see it terminated, which it unilaterally did in late 2002, after charging the North with violating its terms by pursuing nuclear weapons through a secret uranium enrichment program.  Prior to that, in January 2002, President Bush branded North Korea a member of the “axis of evil.”  In March, the terms of a new military doctrine were leaked, revealing that the United States reserved the right to take preemptive military strikes and covert actions against nations possessing nuclear, biological, and chemical weapons as well as use nuclear weapons as an option in any conflict; North Korea was listed as one of the targeted nations.  In July, President Bush rejected a North Korean request for a meeting of foreign ministers, calling Kim Jong Il a “pygmy” and a “spoiled child at the dinner table”

It is certainly possible that North Korea did begin a uranium enrichment program in the late 1990s, although the Bush Administration never provided proof of the program’s existence.  However, what is clear is that the North did halt its plutonium program, allowing its facilities to deteriorate, with little to show for it.  The failure of the United States to live up to its side of the agreement is highlighted by the fact that North Korea’s current demands are no different from what it was promised in 1994.

The North Korean government responded to the Bush administration’s unilateral termination of the Framework Agreement by ordering IAEA inspectors out of the country, restarting its plutonium program, and pledging to build a nuclear arsenal for its defense.

Six Party Talks, 2003-7

Fearful of a new war on the Korean peninsula, the Chinese government organized talks aimed at deescalating tensions between the United States and North Korea.  The talks began in August 2003 and included six countries—the United States, North Korea, South Korea, Japan, China, and Russia.  Two years of talks failed to produce any progress in resolving U.S.-North Korea differences.  One reason: the U.S. representative was under orders not to speak directly to his North Korean counterpart except to demand that North Korea end its nuclear activities, scrap its missiles, reduce its conventional forces, and end human rights abuses.  The North, for its part, refused to discuss its nuclear program separate from its broader relations with the United States.

Finally, in mid-2005, the Chinese made it known that they were prepared to declare the talks a failure and would blame the United States for the outcome.  Not long after, the United States ended its opposition to an agreement.  In September 2005, the six countries issued a Joint Statement, which was largely a repackaged Framework Agreement.  While all the countries pledged to work towards the denuclearization of the Korean peninsula, most of the concrete steps were to be taken by the United States and North Korea “in a phased manner in line with the principle of ‘commitment for commitment, action for action’.”

Unfortunately, the day after the Joint Statement was issued, the United States sabotaged it.  The U.S. Treasury announced that it had “proof” that North Korea was counterfeiting $100 bills, so called super notes, an action it said amounted to war.  It singled out the Macao-based Banco Delta Asia, which was one of North Korea’s main financial connections to the west, for supporting the country’s illegal activities, froze its dollar accounts, and warned other banks not to conduct business with it or service any North Korean dollar transactions.  The aim was to isolate North Korea by denying it access to international credit markets.  The charge of counterfeiting was rejected by the North, most Western currency experts, and even China and Russia who were given a presentation of evidence by the U.S. Treasury.  However, fearful of possible U.S. retaliation, most banks complied with U.S. policy, greatly harming the North Korean economy.

The timing of the counterfeit charge was telling.  The U.S. Treasury had been concerned with counterfeit super notes since 1989 and had originally blamed Iran.  The sum total identified was only $50 million, and none of the notes had ever circulated in the United States.  This was clearly yet another effort to stop normalization and intensify economic pressure on North Korea.

The North announced that its participation in Six Party talks was contingent on the withdrawal of the counterfeit charge and the return of its Banco Delta Asia dollar deposits.  After months of inaction by the United States, the North took action.  On July 4, 2006, it test-fired six missiles over the Sea of Japan, including an intercontinental missile.  The U.S. and Japan condemned the missile firings and further tightened their sanctions against North Korea.  In response, on October 8, 2006, North Korea conducted its first nuclear test.  Finally, the U.S. agreed to reconsider its financial embargo and the North agreed that if its money was returned and it received energy supplies and economic assistance it was willing to once again shutdown its nuclear facilities, readmit international inspectors, and discuss nuclear disarmament in line with steps toward normalization of relations with the United States.

The Six Party talks began again in December 2006 but the process of securing implementation of the Joint Statement was anything but smooth.  The U.S. chief negotiator at the talks announced in February 2007 that all frozen North Korean deposits would be unfrozen and made available to the North within 30 days; the North was given 60 days to shut down its reactor.  However, the Treasury refused to withdraw its charges, and no bank was willing to handle the money for fear of being targeted as complicit with terrorism.  It took the State Department until June 25 to work out a back-door alternative arrangement, thereby finally allowing the Six Party agreement to go into effect.

The Six Party Agreement, 2007-9

As noted above, the Six Party agreement involved a phased process.  Phase 1, although behind schedule because of the U.S. delay in releasing North Korean funds, was completed with no problems.  In July 2007, North Korea shut down and sealed its Yongbyon nuclear complex which housed its reactor, reprocessing facility, and fuel rod fabrication plant.  It also shut down and sealed its two partially constructed nuclear reactors.  It also invited back IAEA inspectors who verified the North Korean actions.  In return, the U.S. provided a shipment of fuel oil.

Phase 2, which began in October, required the North to disable all its nuclear facilities by December 31, 2007 and “provide a complete and correct declaration of all its existing nuclear programs.”  In a separate agreement it also agreed to disclose the status of its uranium enrichment activities.  In exchange, the North was to receive, in stages, “economic, energy, and humanitarian assistance.” Once it fulfilled all Phase 2 requirements it would also be removed from the U.S. Trading with the Enemy Act and the State Sponsors of Terrorism list.

North Korean complaints over the slow delivery of fuel oil delayed the completion of this second phase.  However, in May 2008, North Korea completed the last stage of its required Phase 2 actions when it released extensive documentation of its plutonium program and in June a declaration of its nuclear inventory.  In response, the U.S. removed North Korea from its list of state sponsors of terrorism.

However, the U.S. government failed to release the remaining promised aid or end the remaining sanctions on North Korea.  It now demanded that North Korea accept a highly intrusive verification protocol, one that would open up all North Korean military installations to U.S. inspection, and made satisfaction of Phase 2 commitments dependent on its acceptance.  The U.S. was well aware that this demand was not part of the original agreement.  As Secretary of State Rice stated, “What we’ve done, in a sense, is move up issues that were to be taken up in phase three, like verification, like access to the reactors, into phase two.”

The North offered a compromise—a Six Party verification mechanism which would include visits to declared nuclear sites and interviews with technical personal.  It also offered to negotiate a further verification protocol in the final dismantlement phase.  The U.S. government rejected the compromise and ended all aid deliveries.

In February 2009, the North Korea began preparation to launch a satellite.  South Korea was preparing to launch a satellite of its own in July.  The North had signed the appropriate international protocols governing satellites and was now providing, as required, notification of its launch plan.  The Obama administration warned the North that doing so would violate sanctions placed on the country after its nuclear test.  In response, the North declared that it had every right to develop its satellite technology and if the U.S. responded with new sanctions it would withdraw from the Six Party talks, eject IAEA monitors, restart its reactors, and strengthen its nuclear deterrent.

The North launched its satellite in April.  In June, the U.S. won UN support for enhanced sanctions, and the North followed through on its threat.  In May the North conducted a second nuclear test, producing yet another round of sanctions.

Recent Events

In April and December 2012 the North again launched earth observation satellites.  Although before each of these launches the U.S. asserted that these were veiled attempts to test ballistic missiles designed to threaten the United States, after each launch almost all observers agreed that the characteristics of the launches—their flight pattern and the second stage low-thrust, long burntime–were what is required to put a satellite in space and not consistent with a missile test.

After the December launch, the only successful one, the U.S. again convinced the Security Council to apply a new round of sanctions.  And in response, the North carried out its third nuclear test in February 2013.  The North Korean Ministry of Foreign Affairs pointed out that there have been “more than 2,000 nuclear tests and 9,000 satellite launches” in the world, “but the UN Security Council has never passed a resolution prohibiting nuclear tests or satellite launches.”  The Security Council responded to the North’s nuclear test by approving stricter sanctions.

In addition to sanctions, the U.S. has also intensified its military provocations against the North in hopes of destabilizing the new North Korean regime led by Kim Jung Un.  For example, in 2012, U.S.-South Korean military analysts conducted the world’s largest computerized war simulation exercise, practicing the deployment of more than 100,000 South Korean troops into North Korea to “stabilize the country in case of regime collapse.”  As part of their yearly war games, U.S. and South Korean forces also carried out their largest amphibious landing operations in 20 years; 13 naval vessels, 52 amphibious armored vehicles, 40 fighter jets and helicopters, and 9,000 U.S. troops were involved.

As part of its March 2013 war games, the U.S. flew nuclear-capable B-2 Stealth bombers over South Korea; these are also the only planes capable of dropping the 30,000-pound Massive Ordnance Penetrator bomb, which was developed to destroy North Korean underground facilities.  Nuclear-capable B-52 bombers also flew over South Korea, dropping dummy munitions.  The United States also sent the nuclear-powered submarine USS Cheyenne, equipped with Tomahawk missiles, into Korea waters.

The North Korean government responded to these threats in three ways.  First, the content of their declarations changed.  In particular, they began to focus their own threats on the U.S. as well as South Korea.  For example, the government stated, “If the US imperialists brandish nuclear weapons, we — in complete contrast to former times — will by means of diversified, precision nuclear strike in our own style turn not just Seoul, but even Washington, into a sea of fire.”  It also asserted, for the first time, that its nuclear weapons were no longer negotiable.  At least, not “as long as the United States’ nuclear threats and hostile policy exist.”

Second, the government put North Korean forces on full alert, including all artillery, rockets, and missiles.  Kim Jong Un announced that the country would “answer the US imperialists’ nuclear blackmail with a merciless nuclear attack.”  Finally, it announced, in April, that it would restart its uranium enrichment program and its Yongbyon reactor.

What Lies Ahead

The Obama administration has adopted what it has called the doctrine of “strategic patience” in dealing with North Korea.  But as made clear from above, in reality the U.S. has continued to pursue an aggressive policy towards North Korea, motivated by the hope that the regime will collapse and Korean reunification will be achieved by the South’s absorption of the North, much like the German experience.

The consequence of this policy is ever worsening economic conditions in the North; continuing military buildup in the United States, Japan, China, and both North and South Korea; a strengthening of right-wing forces in South Korea and Japan; and the growing threat of a new war on the Korean peninsula.  There are powerful interests in Japan, South Korea, and the United States that are eager to further militarize their respective domestic and foreign policies, even at the risk of war.  Tragically, their pursuit of this goal comes at great cost to majorities in all the countries concerned, even if war is averted.

The North has made clear its willingness to enter direct talks with the United States.  It is only popular pressure in the United States that will cause the U.S. government to change its policy and accept the North Korean offer.  It is time for the U.S. government to sign a peace treaty finally ending the Korean War and take sincere steps towards normalization of relations with North Korea.

I was recently interviewed by David Delk on his Populist Dialogue cable TV program.  I shared my criticism of free trade as a corporate project, looking in particular at the Transpacific Partnership Free Trade Agreement (which the president is aggressively promoting) and the U.S.-Korea Free Trade Agreement (which was recently passed).

The 30 minute program can be watched here or below.

For more on the Transpacific Partnernership Free Trade Agreement see here and here.

For more on the U.S.-Korea Free Trade Agreement see here, here,  and here.

Agreement on Technical Barriers to Trade (TBT)—what could that be you ask?  It is one of the many agreements enforced by the World Trade Organization (WTO).    

The WTO is said to be concerned only with the promotion of free trade for our collective benefit.  And, according to the WTO, the TBT was negotiated to achieve that very aim. In the words of the WTO:

Technical regulations and product standards may vary from country to country. Having many different regulations and standards makes life difficult for producers and exporters. If regulations are set arbitrarily, they could be used as an excuse for protectionism. The Agreement on Technical Barriers to Trade tries to ensure that regulations, standards, testing and certification procedures do not create unnecessary obstacles, while also providing members with the right to implement measures to achieve legitimate policy objectives, such as the protection of human health and safety, or the environment.

Sounds reasonable—well, the United States just lost two cases this past September in which foreign governments charged the United States with violating that agreement.

First case: a WTO panel ruled in Mexico’s favor against U.S. measures designed to protect dolphins.  The United States allows tuna fishers that use dolphin-safe nets to label their tuna sold in the U.S with a dolphin-safe label.  According to Mexico, this unfairly discriminates against those fishers that want to use different methods of production.  The WTO agreed—the U.S. was being an unfair trader.  No more labels.  

Second case: a WTO panel ruled against U.S. measures designed to reduce teenage smoking.  Among other things, the U.S. measures banned the sale of many flavored cigarettes–in particular clove cigarettes–which were seen as likely to hook young smokers.  Indonesia is a major producer and exporter to the United States of clove cigarettes and it argued that the U.S. ban discriminated against its products.  The WTO agreed—the U.S. was being an unfair trader.   

It also looks likely that a WTO panel will find against U.S. consumer labeling laws that allow country of origin labeling for beef.  If consumers knew where their beef came from it might influence their purchasing decisions.  That could have a negative effect on sales of imported beef.  

Free trade in the eyes of the WTO means maximum freedom for corporations to produce and sell products as they want.  Said differently, it means a world in which governments are forbidden to take steps to protect the environment or the health of its citizens if doing so interferes with private profit making. 

This is just one agreement.  The WTO presides over many more that are equally, if not more, scandalous.  You will be hard pressed to read about these decisions in the press.  The reason: it might encourage people to question the free trade agreements with Korea, Colombia, and Panama that the U.S. government is promoting, since they also include TBTs.  My recently published analysis of the U.S.-Korea Free Trade Agreement can be read here.

The president, with the enthusiastic support of our business community, is pushing ratification of free trade agreements with Korea, Colombia, and Panama.  The fact is that these agreements are terrible for working people. 

Those advocating their ratification generally argue that they are simple tariff reduction agreements which promote exports and jobs.  In the case of the Korea agreement, the U.S. trade representative claims that ratification will create 70,000 new jobs for American workers.  The fact is, as argued before, this claim is based on a fradulent methodology that ignores the consequences of the expected growth in imports and trade diversion.  In short, the government is playing fast and loose with the data to manipulate public opinion.  

The government is willing to go to such lengths because these bilateral free trade agreements have become increasingly important to the business sector.  Originally the U.S. and other governments favored multilateral agreements like the WTO.  However, popular resistance has made it almost impossible to expand their reach.  As a result, most governments have settled on a strategy of using bilateral agreements to strengthen corporate power in a step-by-step approach that is less likely generate another “Seattle.”

Two recent WTO rulings based on alleged U.S. violations of the Technical Barriers to Trade agreement (TBT) help to clarify what is at stake.  Among other things, the TBT says:

Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade.  For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfill a legitimate objective, taking account of the risks non-fulfillment would create.  Such legitimate objectives are, inter alia:  national security requirements;  the prevention of deceptive practices;  protection of human health or safety, animal or plant life or health, or the environment.  In assessing such risks, relevant elements of consideration are, inter alia:  available scientific and technical information, related processing technology or intended end-uses of products.

This may sound pretty harmless but the key is that the TBT requires governments to pursue their policy goals in ways that are least likely to discourage trade.  Even if government regulations apply equally to foreign and domestic firms, if foreign firms can make a case that the regulations disproportionately affect them because of the way they produce, they can use this agreement to force a change in government policy.  That is what happened in the two recent rulings.   

The first WTO ruling declared that the U.S. must stop allowing companies to put labels on cans of tuna to tell their consumers that the tuna was caught using fishing techniques that protect dolphins.  According to the WTO, not only can we not ban tuna caught using nets that also kill dolphins, we cannot even use labels that inform consumers about how the tuna was caught.  The reason: such labels might influence consumer purchases.  The case was filed by Mexico, representing some 15 countries including the European Union.

The second WTO ruling declared that the U.S. must stop using labels on beef sold in supermarkets that reveal the country where it was raised and slaughtered.  Significantly, although this case was brought by cattle interests in Mexico and Canada, the outcome was also endorsed by the largest cattle industry group in the United States.  Class interest usually does trump national interest.  According to a Reuters report, the president of the National Cattlemen’s Beef Association said, ”This ruling is unfortunate for the U.S. government but the consequences of a poor decision have been revealed. We fully support WTO’s preliminary ruling.”  The Association supports the ruling because it will allow cattle producers to combine various qualities of meat sourced from different locations thereby cheapening their costs of production without worry about consumer reaction.  

A strengthened TBT is included in each of the three free trade agreements that our government is promoting.  And there are many other destructive chapters in each of these agreements that our government has also conveniently forgotten to tell us about.  No doubt they are afraid that if we really understood what these agreements are about we would realize that they are designed to promote corporate profitability without any regard for the public interest. 

Our response needs to be a clear and loud “no” to the ratification of these and future free trade agreements.

President Obama has said that the U.S. needs to compete more effectively for exports.  That is why he is calling on Congress to ratify U.S. free trade agreements with Korea, Columbia, and Peru.

In the public back and forth about these free trade agreement most of the arguments are about whether the designated tariff reductions mandated by the agreements will produce jobs for U.S. workers.  In fact, there is little reason to believe that they will.  But, more importantly, little attention has been focused on the fact that these free trade agreements contain many chapters that have far reaching implications beyond employment numbers.

In fact, the U.S. free trade agreement with Korea includes 24 chapters.  One of those chapters deals with investments.  In broad brush, the investment chapter establishes broad limits on the ability of governments (at all levels) to regulate or interfere with private profit seeking investments by (foreign) corporations. 

According to the chapter, the investments covered by the agreement include:

every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms that an investment may take include:

(a) an enterprise;
(b) shares, stock, and other forms of equity participation in an enterprise;
(c) bonds, debentures, other debt instruments, and loans;
(d) futures, options, and other derivatives;
(e) turnkey, construction, management, production, concession, revenue-sharing, and other similar contracts;
(f) intellectual property rights;
(g) licenses, authorizations, permits, and similar rights conferred pursuant to domestic law; and
(h) other tangible or intangible, movable or immovable property, and related property rights, such as leases, mortgages, liens, and pledges.

This chapter is supposed to secure the protection of Korean investors in the U.S. and U.S. investors in Korea.  In actuality, it will ensure that Korean and U.S. investors will enjoy these protections in their own countries as well.  Although this agreement does allow governments to offer foreign investors protections that exceed those they offer their own investors, it is highly unlikely that they would do so.  Thus, the freedoms granted to foreign investors under the terms of this chapter will, sooner or later, be extended to domestic firms as well, thereby expanding corporate power more generally.  And since, as the above list makes clear, a wide range of activities are to be protected under the terms of this chapter, it is likely that many corporations can expect to benefit from it.

One protection granted to foreign companies is the freedom from government imposed performance requirements.  According to the chapter: 

Neither Party may, in connection with the establishment, acquisition, expansion, management, conduct, operation, or sale or other disposition of an investment in its territory of an investor of a Party or of a non-Party, impose or enforce any requirement or enforce any commitment or undertaking:

(a) to export a given level or percentage of goods or services;
(b) to achieve a given level or percentage of domestic content;
(c) to purchase, use, or accord a preference to goods produced in its territory, or to purchase goods from persons in its territory;
(d) to relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with such investment;
(e) to restrict sales of goods or services in its territory that such investment produces or supplies by relating such sales in any way to the volume or value of its exports or foreign exchange earnings;
(f) to transfer a particular technology, a production process, or other proprietary knowledge to a person in its territory; or
(g) to supply exclusively from the territory of the Party the goods that such investment produces or the services that it supplies to a specific regional market or to the world market.

This protection clearly limits the ability of a government to implement any meaningful industrial policy. 

The chapter also grants foreign corporations protection from expropriation.  According to the chapter, “Neither party may expropriate or nationalize a covered investment either directly or indirectly through measures equivalent to expropriation or nationalization.”  Critical here is the notion of indirect expropriation or nationalization. 

Indirect expropriate refers to a government action or regulation that has an “effect equivalent to direct expropriation without formal transfer of title or outright seizure.”  A direct nationalization is relatively easy to define, since it involves an explicit government seizure of title and/or assets.  Determining whether an indirect nationalization has occurred is far more difficult.  According to the chapter, such a determination will require:

a case-by-case, fact based inquiry that considers all relevant factors relating to the investment, including:

(i) the economic impact of the government action, although the fact that an action or a series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred;
(ii) the extent to which the government action interferes with distinct, reasonable investment-backed expectations; and
(iii) the character of the government action, including its objectives and context. Relevant considerations could include whether the government action imposes a special sacrifice on the particular investor or investment that exceeds what the investor or investment should be expected to endure for the public interest.

Given the broad range of covered investments, this definition will likely mean that many government actions, including those dealing with health and safety concerns or land use planning, could conceivably result in an indirect expropriation from the perspective of the investor.  This is especially true given that an investor can, as noted above, claim an indirect expropriation if a government action “interferes with distinct, reasonable investment-backed expectations” or “imposes a special sacrifice on the particular investor or investment that exceeds what the investor or investment should be expected to endure for the public interest.” 

There is enough ambiguity in all of this, that one can easily imagine foreign corporations challenging many government regulations.  And, if a corporation does feel that it is the victim of an indirect expropriation, this chapter gives it the power to directly sue the unit of government that has implemented the offending rule or regulation. 

Under the terms of the dispute-settlement mechanism, the corporation can have its claim judged under the World Bank sponsored ICSID (International Centre for Settlement of Investment Disputes) Convention and the ICSID Rules of Procedure for Arbitration, the UNCITRAL (United Nations Commission on International Trade Law) Arbitration Rules, or any other arbitration institution if it is agreed to by both parties. 

For example, if the ICSID is chosen to judge the claim, which is the most common choice in agreements like this, three arbitrators will be selected from a listing of international trade and investment specialists. Each side selects one with a third to be chosen by agreement of the two sides.  In other words, this dispute-settlement mechanism allows a corporation to challenge a governmental action outside the legal system of the host nation and have its case decided according to terms that differ from that nation’s legal system.

As Public Citizen reports:

The special threat is posed by the fact that there is a huge number of U.S. and Korean companies cross-established in each other’s national markets. If the Korea FTA were to be passed with its current text, at least 1,030 corporations with 2,055 establishments across the United States and South Korea would obtain new FTA rights to demand taxpayer compensation through challenges of U.S. and Korean federal and subfederal laws in foreign tribunals. The scale of investment going in both directions is very unlike previous U.S. FTAs with small developing nations.”

We already have an example of how this process could conceivably work.  NAFTA has a similar investor-state dispute settlement mechanism.   In 1996, The Loewen Group, a Canadian funeral home company, lost a $500 million verdict to a Mississippi funeral home business that had accused it of fraudulent business practices.  Loewen appealed the case to the Mississippi Supreme Court, which refused to overturn the decision.  In 1999, the Loewen Group took its case to a NAFTA tribunal, arguing that the verdict against the company should be invalidated because the court proceedings were tainted by anti-Canadian bias.  Loewen asked the tribunal for compensation for what it had to pay to settle the case and for additional damages to compensate the company for the harm done to its business reputation.

The tribunal issued its decision in 2003, ruling in favor of the United States.  The Dispute Resolution Journal describes the reasoning and conclusions of the tribunal as follows:

In its 71-page award, the tribunal . . . acknowledged that this was a difficult case. The award addressed the Loewen Group’s claims of an unfair process as well as the United States’ numerous arguments that it was not liable under NAFTA. In so doing, the tribunal chronicled the injustices suffered by the company and its founder, co-claimant Raymond Loewen. Ultimately, it found, among other things, that “the conduct of the trial judge was so flawed as to constitute a miscarriage of justice amounting to a manifest injustice as that expression is understood in international law.” The tribunal also said that the jury verdict was grossly excessive to the amounts in dispute and therefore the claimants had “strong prospects” of a successful appeal. . . .

After recounting its findings, the tribunal explained that its decision to dismiss the NAFTA claims on the merits was ultimately based on a lack of jurisdiction. It reasoned that it had no authority to determine the Loewen Group’s NAFTA claims because the company had reorganized under Chapter 11 of the Bankruptcy Code as an American corporation and then assigned its NAFTA claims to a newly formed Canadian corporation “owned and controlled by an American corporation.” NAFTA, the tribunal pointed out, was not intended to address investment-related claims by domestic investors against their government.

In other words, the tribunal found it within its authority to rule on this case, even though its decision could potentially overturn a decision made by a U.S. court.  And it gave strong indication that it felt that such action was justified by its reading of the submitted documents.  It rejected the claim only because the Loewen Group, by reorganizing itself as a U.S. registered company, was no longer a “foreign” company and thus no longer had standing under the terms of NAFTA.  If the tribunal had ruled in Loewen’s favor, the U.S. government would have been forced to compensate the company.

Interestingly, the recently completed U.S.-Australia FTA does not include an investor-state enforcement mechanism, but rather relies on state-state enforcement of the FTA’s investment, services and financial services chapters.  It appears that the U.S.-Korea FTA includes an investor-state mechanism because of U.S. insistence.  As Public Citizen reports: 

Korean civil society organizations report that Korean government officials expressed concern about investor-state, which was characterized by Korean negotiators as a U.S. demand. The FTA text itself reveals Korea’s concerns: Korea insisted on and obtained a limitation on investor-state enforcement. Under this limitation, if a U.S. firm starts proceedings in a Korean court or administrative tribunal about a Korean policy that they claim breaches the various property rights established in the FTA, then they may NOT also use the investor-state system. U.S. firms have to pick domestic OR investor-state.  USTR did NOT make that exception apply to us. . . . That the Korea government would be concerned is reasonable: there are hundreds of U.S. firms in Korea that would be newly empowered to use the investor-state mechanism to privately enforce the FTA’s extraordinary foreign investor rights that extend beyond Korea domestic law, which like U.S. law does not generally recognize compensation claims for “regulatory” takings. 

It seems safe to say that this investment chapter will create an environment in which governments will  understandably be leery of doing anything that might be viewed as harmful to corporate activities, present or future.  Make no mistake, this is the outcome desired by those who drafted the agreement.  

I bet you have read or heard little about this chapter, or the others that have a similar aim, in the public discussions of the U.S.-Korea FTA.  And that is also no accident. 

It is hard to see how this agreement will serve the public’s interest in either Korea or the U.S.   President Obama is pushing Congress to ratify it as soon as possible.  It is very important that we push back.  Our goal must be the defeat of this and the other so-called free trade agreements.

The President of China, Hu Jintao, just completed a visit to the U.S. and, not surprisingly, many people used the occasion to raise the jobs issue.  The U.S. economy continues to suffer from high unemployment.  And the U.S. continues to run an enormous trade deficit with China, a deficit that dwarfs any other bilateral deficit.  The connection made is as follows: China is an unfair trader.  Its state policies, including subsidies and labor repression, are a major reason for the destruction of our manufacturing sector and jobs. 

This nation-state framing encourages us to see U.S. workers in direct competition with Chinese workers, with their gains largely coming at our expense.  It also tends to promote a simple response: force China to quicken its embrace of market forces so that its economy will become more like ours.  Unfortunately, this framing misleads more than it helps to clarify current economic dynamics.  It also leads to a counterproductive response. 

A more accurate framing would start from the fact that contemporary capitalist dynamics have led to the creation of a regional production network in East Asia, with China serving as the region’s final assembly base for exports to the U.S.  The primary beneficiaries of this development are the many multinational corporations that have created the network, and the primary losers are the majority of workers in China and the United States.  The appropriate response to this development would be to build opposition to the policies that support this corporate strategy, including free trade agreements.   

Multinational corporations have developed a strategy to cheapen their costs of production, especially of information, technology and communication (ICT) products and electrical goods like semiconductors.  This strategy involves dividing production processes into ever-finer vertical divisions and locating the separate stages in two or more countries, creating what are called cross-border production networks.  The growth in this strategy is captured by the growth in the international trade in parts and components.  Trade figures also make clear that multinational corporations have made East Asia the center piece of their new strategy.

East Asia’s share (including Japan) of world parts and component exports grew from 27 percent in 1992-93 to 39 percent in 2005-06, despite a significant decline in Japanese exports in recent years.  Developing East Asia’s share grew from 17.8 percent to 32.3 percent over the same period.  In 2005-06, developing East Asia accounted for more than two thirds of the total component trade of developing countries.

Significantly, ICT and electrical goods together accounted for almost three fourths of total East Asian exports in 2006-2007.  And in accord with the logic of this cross border production strategy, a growing percentage of this trade activity involves parts and components.  And, a growing share of this parts and components trade now takes place between different East Asian countries. The Asian Development Bank summarizes the situation as follows:

Disaggregating manufacturing trade into final products on the one hand and parts and components on the other shows… [that] intraregional trade in Asia is mainly concentrated in parts and components.  The intraregional share of developing Asia’s parts and component trade rose by almost 20 percentage points over the past decade, reaching 62 percent in 2005-2006, as compared to an 8 percentage point increase in total trade in manufacturing over the same period.

China has come to play a central role in the overall operation of this multinational corporation controlled production strategy.  As the Asian Development Bank describes:

there is the cluster of highly interdependent, open, and vibrant economies in East Asia and Southeast Asia . . . . With the PRC at the center of the assembly process and with exports going mainly to the U.S. and Europe, production in and trade among these economies have been increasingly organized through vertical specialization in networks, with intense trade in parts and components, particularly in the ICT and electrical machinery industries.

The share of parts and components in China’s imports of manufactures from East Asia rose from 18 percent in 1994-1995 to 46 percent in 2006-2007.  The import share of parts and components in the machinery and transportation equipment category (which includes both ICT and electrical goods) soared over that same period from 46.1 percent to 73.3 percent.

China’s unique position as the region’s production platform for the export of final goods is highlighted by the fact that it is the only country in the region that runs a deficit in parts and components trade, and whose exports are overwhelmingly final products.  It is this unique position that has enabled China to increase its share of world exports of ICT products from 3 percent in 1992 to 24 percent 2006, and its share of electrical goods from 4 percent to 21 percent over the same period.  Of course, these are not truly Chinese exports, but rather exports produced in China.  Approximately 60 percent of all Chinese exports are produced by foreign corporations; the share is 88 percent for high-tech goods. 

The Asian Development Bank highlights the significance of this process for East Asian economic activity as follows:

even though intra-Asian trade has been expanding more rapidly than Asia’s trade with the rest of the world, Asia has become ever more closely linked by globalization to the major global markets of the G3 [the United States, EU, and Japan]. This stems from the nature of Asian trade, with intra-Asian trade driven by vertically integrated Asian production chains and extra-Asian trade driven by G3 demand for the final goods produced in these networks. 

The rapid growth in the region’s dependence on the G3, and the U.S. market in particular, is well captured by the following trends: the correlation between the growth in East Asian intraregional exports and U.S. non-oil imports increased from .01 during the 1980s, to .22 during the 1990s, and .63 during the first half of the 2000s. Similarly, the correlation between the growth in East Asian exports and G3 non-oil imports rose from .21 during the 1980s, to .34 during the 1990s, and .77 during the first half of the 2000s. 

Drawing on the above, we can better understand why China now looms so large in U.S. trade discussions.  The rest of East Asia has largely stopped producing final goods for export to the U.S., producing instead parts and components for export to China.  China, in turn, has also become increasingy export oriented, producing the final products destined for sale in the U.S. market.  As a result, our trade deficits with other East Asian countries have fallen while our trade deficit with China has increased.  China is the face of a broader multinational corporate dominated East Asian production system.

In other words, our economy is being restructured in line with the economies of East Asia.  We are being reshaped, just like East Asia, by a multinational corporate strategy, which also is supported by large U.S. firms.  As noted above, approximately 90 percent of China’s high technology exports to the U.S. are produced by multinational corporations and many of them are being bought and sold in the U.S. by other multinational retailers. 

Working people in China are struggling in the face of multinational corporate demands that the Chinese government keep wages low and working conditions profitable.   And workers in other East Asian countries are also suffering as their governments are forced to implement similar repressive labor policies in order to keep multinational corporations producing in their countries.  In short, Chinese workers are not stealing our jobs.  Rather working people in East Asia and the U.S. are suffering from very similar pressures being generated by the very same dynamic.  Said more simply, our problems are at root caused by contemporary capitalist dynamics.  Forcing China to become more open to capitalism is not going to help us or them.  

Of course, this is a framing that the media and business and corporate elite are not eager to promote.   Better that we think our system is great and that the problem is that the Chinese government has not yet fully committed to promoting a similar one.       

The US-Korea Free Trade Agreement (FTA) is back on the US political agenda.  Signed in June 2007 by the governments of the two countries, it has yet to be ratified by either the Korean National Assembly or the US Congress.   

Although social movements in Korea have waged a militant campaign against ratification in their country, opposition to the agreement by key members of the U.S. Congress appears to have been the main reason for the non-action.  If Congress had approved the agreement, the Korean National Assembly would have likely followed.   

Congressional opponents of the US-Korea FTA claimed to be motivated by industry and labor concerns that the agreement did not do enough to protect US jobs.  The automobile industry (in particular Ford), joined by the UAW, was especially vocal in demanding changes to the agreement.  Given that South Korean political leaders refused to reopen negotiations, there appeared little chance that the FTA would ever be ratified. 

But things have changed.  President Obama, under intense pressure to boost employment without further deficit spending, has now embraced an export-led jobs strategy.  In his January 2010 State of the Union address, he called for doubling exports over the next five years, an increase, he claimed, that would create two million jobs.  Achieving this goal, he added, required, among other things, approving the US-Korea FTA.  Demonstrating his commitment to his new strategy, he created a new export-promotion council composed of 20 major business leaders, including the CEOs of key transnational corporations such as Boeing, Pfizer, Ford, and UPS.   

Beginning in July 2010, the US government began pressing South Korea to make changes in the agreement.  The South Koreans capitulated and, in December, both governments announced new ground rules for the auto trade, which involved concessions to the U.S. auto industry. Now, Ford is on board with the agreement, and so is the UAW.  It remains to be seen what Congress will do. 

Unfortunately it is unlikely that working people will ever be told the truth about the destructive consequences of this agreement (for majorities in both countries.)  The issue is already being clouded by misleading claims.  Perhaps the biggest is that this agreement will mean jobs for U.S. workers.  For example, according to the US Trade Representative, Ron Kirk: 

The tariff cuts alone in the US-Korea trade agreement will increase exports of American goods and services by $10 to $11 billion.  We expect this agreement to create 70,000-plus jobs for American workers in a wide range of economic sectors from autos and manufacturing to agriculture. 

But where do the figures come from—and how much confidence should we have in them?  Thanks to the Eyes on Trade Blog, we can answer those questions.  

As it points out, the Administration began with the prediction by the US International Trade Representative (USITR) that the agreement will boost US exports to Korea by $10-11 billion.  Then it apparently used estimates from the International Trade Administration that every $150,000 in exports supports one American job.  Applying this multiplier to the expected increase in US exports to Korea, one gets a range of 73,333-66,667 jobs. “The 70,000 jobs stat is right in the middle of the range, so there is a high probability that this is the origin of the estimate.” 

But there is a big problem with this reasoning.  For one thing, this calculation does not include the effect of imports (which cost jobs).  If we were to account for the effect of imports on jobs using this same methodology, some 60 percent of the bilateral job gain is erased.  

But there is another problem.  The USITR got its predicted trade figures from a complex modeling exercise that incorporates all changes in US trade that might result from the US-Korea FTA.  As it turns out, some of the increase in US exports to Korea is actually the result of trade diversion.  In other words, not all of the increase in US exports to Korea means new jobs.   

As the Eyes on Trade Blog explains, if one were to look at the total trade effects of the agreement, one finds (based on the work of the USITR) that:  

[Overall] U.S. exports in the sectors analyzed will increase by $4.8-5.3 billion, but imports will increase by $5.1-5.7 billion due to the Korea FTA. This leads to a net increase in the deficit of between $308 million and $416 million.  The “$10 to $11 billion” figure that Kirk is citing refers to the increase in exports to only Korea, but does not account for declines in U.S. exports to other countries that the FTA will induce. Because of the way that bilateral trade agreements affect global trade flows, about 50% of the increase in exports to Korea are merely U.S. exports to third countries shifting to Korea. In other words, 50% of the “$10 to $11 billion” does not represent new exports, only exports that have changed destination. 

In fact, the USITR’s own study suggests that the overall US trade deficit will actually grow if the US-Korea FTA is ratified.  Thus, if we use the government’s own methodology we can only conclude that things will get worse job wise, rather than better.

The truth is that the US administration has no idea what this agreement will mean as far as jobs are concerned.  And they apparently don’t care.  The main goal of this agreement is to help the US financial, services, and medical goods sectors make profits by giving them ever greater freedom to internationalize their operations.  If the agreement is ratified, these industries will become stronger and our unbalanced economy will become only further unbalanced.  And we wont be doing Koreans any favor either.   This FTA should not be ratified.

What’s happening on the Korean peninsula?  If you read the press or listen to the talking heads, your best guess would be that an insane North Korean regime is willing to risk war to manage its own internal political tensions.  This conclusion would be hard to avoid because the media rarely provide any historical context or alternative explanations for North Korean actions.

For example, much has been said about the March 2010 (alleged) North Korean torpedo attack on the Cheonan (a South Korean naval vessel) near Baengnyeong Island, and the November 2010 North Korean artillery attack on Yeonpyeong Island (which houses a South Korean military base).

The conventional wisdom is that both attacks were motivated by North Korean elite efforts to smooth the leadership transition underway in their country.  The take away: North Korea is an out-of-control country, definitely not to be trusted or engaged in negotiations.

But is that an adequate explanation for these events?  Before examining the facts surrounding them, let’s introduce a bit of history.   Take a look at the map below, which includes both Baengnyeong and Yeonpyeong Islands.

The armistice that ended the Korean War fighting established the Demilitarized Zone (DMZ) which separates North Korea from South Korea.  At that time, the U.S. government unilaterally established another dividing line, one intended to create a sea border between the two Koreas.  That border is illustrated on the map by line A, the blue Northern Limit Line (NLL).

As you can see, instead of extending the DMZ westward into the sea, the U.S. line runs northward, limiting North Korea’s sea access.  The line was drawn this way for two reasons: First, when the fighting stopped, South Korean forces were in control of the islands off the North Korean coast and the U.S. wanted to secure their position.  Second, control over those islands enhanced the ability of U.S. forces to monitor and maintain military pressure on North Korea.

North Korea never accepted the NLL.  It argued for an alternative border, illustrated by line B, the red West Sea Military Demarcation Line (MDL).  Acknowledging the reality of Southern forces on the islands off its coast, North Korea sought recognition for a sea border that went around the islands but otherwise divided the sea by extending the DMZ line.

The critical point here is that the South Korean and U.S. promoted NLL is not recognized by international law; it has no legal standing.  Don’t take my word for it.  The following is from Bloomberg News:

Then-Secretary of State Henry Kissinger wrote in a 1975 classified cable that the unilaterally drawn Northern Limit Line was “clearly contrary to international law.” Two years before, the American ambassador said in another cable that many nations would view South Korea and its U.S. ally as “in the wrong” if clashes occurred in disputed areas along the boundary. . . .

The line snakes around the Ongjin peninsula, creating a buffer for five island groups that South Korea kept under the armistice that ended the 1950-1953 Korean War, in which U.S.-led forces fought under a UN mandate against North Korean and Chinese troops. The agreement doesn’t mention a sea border, which isn’t on UN maps drawn up at the time.

The 3-nautical mile (3.5-statute mile) territorial limit used to devise the line was standard then. Today almost all countries, including both Koreas, use a 12-mile rule, and the islands are within 12 miles of the North Korean mainland. The furthest is about 100 miles (160 kilometers) from the closest major South Korean port at Incheon.

“If it ever went to arbitration, the decision would likely move the line further south,” said Mark J. Valencia, a maritime lawyer and senior research fellow with the National Bureau of Asian Research, who has written extensively on the dispute. . . .

North Korea, after spending two decades rebuilding its forces, sent vessels across the border 43 times between October and November 1973, sparking confrontations, according to the South Korean Navy’s website. At a meeting with the UN Command, the North’s claim that it was operating within its own waters because the NLL was invalid was rejected.

Kissinger and other U.S. diplomats privately raised questions about the legality of the sea border and South Korea’s policing of it in cables that have been declassified and are available to the public.

“The ROK and the U.S. might appear in the eyes of a significant number of other countries to be in the wrong” if an incident occurred in disputed areas, U.S. Ambassador Francis Underhill wrote in a Dec. 18, 1973, cable to Washington, using the acronym for Republic of Korea.

South Korea “is wrong in assuming we will join in attempt to impose NLL” on North Korea, said a Dec. 22, 1973, “Joint State-Defense Message” to the U.S. Embassy in Seoul. . . .

The line “was unilaterally established and not accepted by NK,” Kissinger wrote in a confidential February 1975 cable. “Insofar as it purports unilaterally to divide international waters, it is clearly contrary to international law.”

I doubt that discussions of the two events noted above mentioned this history.

Tensions in the region are not just the result of past political decisions.  Critical decisions continue to be made.  For example, in October 2007, an inter-Korean summit meeting between Roh Moo-Hyun (the previous South Korean president) and Kim Jong Il (the North Korean leader) produced a commitment by both sides to negotiate a joint fishing area and create a “peace and cooperation zone” in the West Sea.  This agreement could have greatly reduced tensions between the two countries and helped to promote a peaceful reunification process.

However, a few months after the summit, the newly elected and current South Korean president, Lee Myung-bak, rejected the agreements reached at that summit and the previous one held in 2000.  Lee openly derided past South Korean efforts to improve relations with, and called for aggressive actions against, the North.  The U.S. government supported Lee’s position.

With this as background, let’s now consider the first event, North Korea’s alleged sinking of the Cheonan.  The Lee administration claims that a North Korean submarine was responsible for the sinking of the Cheonan and the deaths of 49 sailors.  The Cheonan was an anti-submarine ship, participating in war games at the time of its sinking in the disputed waters surrounding Baengnyeong Island.  Significantly, after weeks of official investigation into the cause of the sinking, Lee publicly blamed North Korea only one day before local elections were scheduled, elections that the ruling party was predicted to lose.  In fact, Lee’s party did take a beating at the polls.

But what about the evidence for North Korean responsibility?  North Korea has denied any involvement in the sinking.  In fact, there is good reason to believe that the Cheonan sank because it hit a reef; that is what its captain reported when he radioed the South Korean coast guard seeking help.

As I noted in a previous posting, perhaps the most compelling evidence casting doubt on South Korean government claims that the Cheonan was torpedoed by a North Korean submarine is the fact that all the Cheonan victims died of drowning, nearly all of the 58 surviving crew members escaped serious injury, and the ship’s internal instruments remained intact.  According to several scientists, if the Cheonan had been hit by a torpedo, the entire crew would have been sent flying, leading to fractured bones and the destruction of instruments.

What about the most recent incident involving the North Korean artillery attack on Yeonpyeong Island?  The South Korean position is that its military was merely engaged in ”routine” war games (involving over 70,000 troops), which also happened to include the firing of live ammunition into the sea from a military base on the island.  It had done nothing to provoke a North Korean artillery attack on the base.

In reality, the South had been strengthening its artillery on the island for some time, engaging in ever more aggressive (non-live ammunition) artillery drills with the apparent aim of boosting its capacity to inhibit the movement of the North Korean navy even in its own waters.  These drills were a direct threat to North Korean security given how close the island is to its coast.

Moreover, although the South claims that its war games and artillery fire were routine, it may be the first time that the South has staged major war games and simultaneously engaged in firing live ammunition into territory claimed by the North.  The North fired on the South Korean artillery batteries located on Yeonpyeong Island only after its repeated demands that the South stop its live ammunition firing were rejected by the South.

Many unanswered questions remain about the Cheonan sinking and the Yeonpyeong attack.  However, what does appear clear is that there are many complexities surrounding these events that are never made public here in the U.S., and that these omissions end up reinforcing a view of North Korean motivations and actions that is counterproductive to what should be our goal: achieving peace on the Korean peninsula.

What might help?  How about encouraging the U.S. government to accept North Korean offers to engage in good faith negotiations aimed at signing a peace treaty to officially end the Korean War as a first step towards normalized relations.  The fact that our government is reluctant to publicly acknowledge the contested nature of the NLL or pursue an end to the Korean War raises important questions about the motivations driving our own foreign policy.

The Australian Government’s Productivity Commission–an Australian Government research and advisory body–just issued a 400 page report on the effects of Australia’s existing “Free Trade” Agreements (FTAs).

This is a timely report.  Before 2003, Australia had only one free trade agreement with New Zealand.  Since then, the Australian government has signed agreements with the ASEAN countries, Chile, Singapore, Thailand and the U.S.  And, it is currently negotiating new agreements with China, the Gulf Co-operation Council, Indonesia, Japan, Korea, Malaysia, and the Pacific Island Forum.

So, what did the Commission conclude?  As the Australian newspaper, the Age, reports:

The Productivity Commission has told the government there is little evidence to suggest Australia’s six free-trade agreements have produced ”substantial commercial benefits”….

The Commission especially criticized the inclusion of investor-state lawsuit provisions in existing agreements.  These provisions enable transnational corporations to sue governments if they feel that public regulations limit their ability to make profits, even if those regulations are put in place to protect the health and safety of citizens.   In the words of the Commission:

There does not appear to be an underlying economic problem that necessitates the inclusion of ISDS [Investor-State Dispute Settlement] provisions within agreements…..Experience in other countries demonstrates that there are considerable policy and financial risks arising from ISDS provisions.

The Commission concluded that the totality of evidence on FTAs “suggest that the economic value of Australia’s [FTAs] has been oversold.”  Therefore, as the Age reports, “The commission says before agreeing to further free trade agreements Australia should first consider whether other options could deliver similar or greater benefits at less cost, among them trade facilitation, investor protection and mutual recognition of standards.”

One could only wish for such honesty from a U.S. government advisory board.  Our government is eagerly pursing ratification of a number of new FTAs (including with South Korea), all of which contain numerous restrictions on the ability of governments to regulate economic activity in the public interest and Investor-State Dispute Settlement provisions.  And, all of which have been oversold, at least as far as their effects on working people are concerned. 

The U.S. media continues to promote a very one-sided view of developments on the Korean peninsula.  The danger is that this one-sided view may, intentionally or not, encourage actions likely to lead to a new Korean war, possibly a nuclear one.

The most important thing to say is that since the end of the Soviet Union and the breakup of the Soviet-centered trading system that supported the North Korean economy, the North Korean government has sought to normalize relations with the U.S.  It has called for direct negotiations and the signing of a peace treaty to finally bring an end to the Korean War; at present we have only the armistice which ended the fighting.

The U.S. has largely rejected all overtures, preferring to keep the North isolated and weak.  For example, the U.S. continues to embargo the North and veto its attempts to join the World Bank and IMF. 

The North, for its part, has found that the only way it can get the U.S. to the negotiating table is with military threats, thus its past missile firings and testing of nuclear weapons.  However, the negotiations rarely last long, an outcome that only restarts the cycle in ever more dangerous ways. 

The issue here is not whether one likes the North Korean government.  The issue here is whether the U.S. government is sincerely interested in peace on the Korean peninsula.

The current crisis on the Korean peninsula was touched off by massive South Korean organized war games–involving over 70,000 soldiers, 600 tanks, 500 warplanes, 90 helicopters, and 50 warships–that were explicitly directed at the North.  As part of the war games, the South Korean military engaged in live artillery fire into waters claimed by North Korea.  

The North repeatedly demanded that the South halt the firing, and when the South refused, the North fired its own artillery at a South Korean military installation on an island some seven miles off the North Korean coast.  Two soldiers and two civilian military contractors were killed.  The South then fired back, causing unknown causalities in the North.

The U.S. government responded to these developments by sending the nuclear-powered aircraft carrier, the USS George Washington (carrying 75 warplanes and a crew of over 6000), and other warships to conduct additional joint war exercises with the South Korean military. 

Thankfully, it appears that a further escalation has been avoided, at least for the moment.  The North has apologized for the deaths and the South has decided not to renew its coastal live-fire artillery exercise.

The key to understanding what is happening now on the Korean peninsula is the fact that the a state of war continues to exist.  Without direct talks aimed at achieving an end to the Korean War and the normalization of relations between the two Koreas and between the North and the U.S., the region will remain a tinderbox.

This is not an impossible task.  For example, in October 2007, an inter-Korean summit meeting between Roh Moo-Hyun (the previous South Korean president) and Kim Jong Il (the North Korean leader) produced a commitment by both sides to negotiate a joint fishing area and create a “peace and cooperation zone” in the West Sea in order to transform the heavily militarized waters into a maritime region for economic cooperation.  Tragically, a few months later, the newly elected (and current) president of South Korea, Lee Myung-bak, rejected the agreements that were reached at that summit and at the previous one held in 2000.

This decision helped to create the atmosphere that produced the current tragedy and threat of renewed war.  So did South Korean charges that the North was responsible for the March 2010 sinking of the Cheonan, a South Korean navy corvette, which resulted in the loss of 49 lives in the waters near the North Korean coast 

Significantly, while the U.S. quickly endorsed the South Korean charge, there is strong reason to believe that the ship sank because it ran aground, and that the South Korean government sought to blame the North in hopes that it could use the crisis to improve its chances in national assembly elections.  

A South Korean newspaper, the Hankyoreh, did an excellent job of highlighting the problems with the government’s case in a 30 minute TV program (with English subtitles) that can be viewed below. 

[youtube] http://www.youtube.com/watch?v=SDITkTEDVNA [/youtube] 

Perhaps the most compelling evidence casting doubt on the South Korean government’s claim that the Cheonan was torpedoed by a North Korean submarine is the fact that all the Cheonan victims died of drowning, nearly all of the 58 surviving crew members escaped serious injury, and the ship’s internal instruments remained intact.  According to several scientists who have modeled the likely results of a torpedo explosion, the entire crew would have been sent flying, leading to fractured bones and the destruction of instruments.

Unfortunately, the U.S. media never reports that South Korean government claims of North Korean responsibility for the sinking of the Cheonan are widely challenged in the South.  Rather, the incident is viewed as another example of the North’s reckless behavior, a framing that colors popular perceptions in this country of current tensions and encourages increasingly strident calls for military action against the North.

So—what should we do?  As stated above, rather than prepare for war, the U.S. government should be pressed to sit down and negotiate directly with the North.  A growing number of mainstream political leaders are arguing the same, although you would not know it from reading the press.  For example:

“We demonize [Kim Jong Il] as a ‘nut case,’ but I have talked to Russians, Chinese, South Koreans and Americans who have met with him at length, and all say he is extremely intelligent. What Kim wants is sustained, serious talks with the US, leading to a comprehensive peace treaty….Our problem is that every time we elect a new president, we seem to feel that we have to start from scratch with North Korea.” – Donald P. Gregg, US ambassador to South Korea (1989–1993) and National Security Advisor to Vice-President George H.W. Bush

“… One item should be at the top of the agenda, however, in order to remove all unnecessary obstacles to progress, that is the establishment of a peace treaty to replace the truce that has been in place since 1953.  One of the things that have bedeviled all talks until now is the unresolved status of the Korean War. A peace treaty would provide a baseline for relationships, eliminating the question of the other’s legitimacy and its right to exist.” – James Laney, U.S. Ambassador to South Korea (1993-1997) and President Emeritus of Emory University

“Pyongyang has sent a consistent message that during direct talks with the United States, it is ready to conclude an agreement to end its nuclear programs, put them all under IAEA inspection and conclude a permanent peace treaty to replace the ‘temporary’ cease-fire of 1953.” –Jimmy Carter, 39th President of the United States

For more about the current situation, check out the following:

• “North Korea’s Consistent Message to the U.S.” by former President Jimmy Carter in The Washington Post, Nov. 24, 2010

• “Retaliation, Retaliation” by Paul Liem of the Korea Policy Institute, Nov. 25, 2010

• “Crisis in Korea?” by John Feffer, Co-director of Foreign Policy in Focus in The Huffington Post, Nov. 23, 2010

• “Obama’s Only Choice on North Korea” by Tim Shorrock in The Daily Beast, Nov. 24, 2010

• “A Return Trip to North Korea’s Yongbyon Nuclear Complex” by Siegfried S. Hecker, Nov. 22, 2010

• “Review U.S. Policy toward North Korea” by Bob Carlin and John Lewis in The Washington Post, Nov. 22, 2010