SMA NEGOTIATIONS ROUND IV: MOVEMENT, BUT STILL FAR

C O N F I D E N T I A L SEOUL 003468

SIPDIS

SIPDIS

DEPARTMENT PLEASE PASS TO PM SENIOR ADVISOR LOFTIS

E.O. 12958: DECL: 10/10/2016
TAGS: MARR PREL KS
SUBJECT: SMA NEGOTIATIONS ROUND IV: MOVEMENT, BUT STILL FAR
APART

Classified By: POLITICAL COUNSELOR JOSEPH Y. YUN. REASONS 1.4 (b/d).


1. (C) SUMMARY: October 10 and 11 negotiations in Seoul on
funding levels for the Special Measures Agreement (SMA) moved
the two sides closer together, but substantial differences
remain. The U.S. proposed a three year agreement, under
which the ROK share would rise to 800 billion won in 2007
(43% of Non-Personnel Stationing Costs - NPSC),910 bn won in
2008 (44%) and 1022 bn won in 2009 (45%). The Koreans
countered with an offer of 630 bn won, a 7.3% decrease from
the current agreement. However, in a small group meeting,
Ambassador Cho hinted strongly that the Korean offer could be
increased to 680 bn won - essentially rolling over the
current agreement. He did not, however, repeat that offer in
the plenary sessions. In both the negotiating sessions with
Cho, and a separate meeting at the Blue House with Deputy
National Security Advisor Suh Choo-suk, ROK officials did not
respond to U.S. arguments that USFK could not and would not
continue to absorb SMA shortfalls and would make whatever
adjustments necessary to remain fully operational, including
the possibility of moving (unspecified) units or assets off
the peninsula. A further round of negotiations will be
scheduled after the upcoming SCM. End Summary.

OCTOBER 10 PLENARY SESSION
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2. (C) Ambassador Cho Tae-yong, head of the Korean delegation
and Director General of the Ministry of Foreign Affairs and
Trade's North American Affairs Bureau, started the first
plenary session of this fourth round of Special Measures
Agreement (SMA) talks by stating that North Korea's nuclear
test on October 9 reinforced the importance of the ROK-U.S.
alliance. Ambassador Robert Loftis, head of the U.S.
delegation and Senior Advisor in the Bureau of
Political-Military Affairs, echoed this sentiment and noted
that now especially was not the time to create any impression
of strain in the alliance. Loftis pointed out that USFK had
absorbed 80 billion won of SMA shortfalls over the past two
years, through a variety of cost-cutting measures. However,
it has now reached a point where belt-tightening measures
were not enough. Future cuts would require different
measures, as the U.S. would not sacrifice operational
capabilities or create a hollow force. This could lead to a
situation where the U.S. removed certain assets or units from
Korea in order to ensure that those that remained were fully
capable. This was not a situation the U.S. wants to see come
to pass. Loftis stated that the original goal of the U.S.
was to reach a 50%-50% arrangement over three years. The
U.S. goal remains a 50/50 split, but that as a compromise the
U.S. was willing to take longer to reach that goal.
Consequently, the U.S. proposed a three year agreement that
sees the Korean share of Non-Personnel Stationing Costs
(NPSC) increasing to 800 billion won (43% of total NPSC) in
2007, 910 billion won (44% of total NPSC) in 2008, and 1022
billion won (45% of total NPSC) in 2009. Loftis reminded the
Koreans that this formula did not get the U.S. where it wants
to be, but represented a step in the right direction and a
way for the ROK to contribute to its own national defense.


3. (C) Cho responded by stating that although he had hoped
that a long-term approach to SMA funding would help remove it
as an irritant in bilateral relations, the ROK could not
conclude such deliberations by the end of this year.
Instead, he proposed that both parties focus their efforts on
finding a short-term solution to cover the next two to three
years, using in the framework of four categories (labor,
logistics, and the two construction funds - ROKFC and CDIP).
The "needs-based" ROK proposal would freeze current levels of
ROK funding in labor and logistics, and reduce construction
funding. Cho argued that because the U.S. military
construction budget has actually decreased from 1999 to 2001
and USFK construction needs should be decreasing in the next
two to three years, the ROK was justified in reducing its
current level of funding in construction. Cho expressed his
hope that its inability to accept increases in SMA funding
not be interpreted as the ROKG's lack of commitment to the
bilateral alliance. Cho's numbers: 630 billion won (a
decrease of 50 million won, or 7.3%, from the current funding
level).

OCTOBER 10 SMALL GROUP MEETING
--------------


4. (C) Moving into a small "3 3" meeting, Ambassador Cho said
he sensed it would be a difficult negotiation because he
could not work with the numbers proposed by the U.S. side.
Ambassador Loftis explained that the ROK assumption that
reduced troops translated into reduced costs was premature
and in many ways very inaccurate. He said USFK's costs are
not going down, citing the example of utility costs that have
increased significantly in recent years. Because of our
military transformation efforts, some cost will actually
increase over the next few years before leveling off and
eventually dropping. Addressing Cho's argument that the ROK
contribution be "needs based" the Ambassador explained that
the four categories in SMA do not act independently of each
other, of other non-personnel stationing costs. Shortfalls
in one area affect others, and would have an effect on
operational readiness. The U.S. is determined that all of
its units and assets in Korea be fully operationally capable.


5. (C) Ambassador Cho argued in response that given U.S.
troop reductions on the Peninsula, he had no basis for
explaining the need for a sudden and substantial increase.
Ambassador Loftis rebutted by pointing out that the current
ROK proposal asks the U.S. to accept a further reduction when
costs are still increasing. Moreover, we do not consider the
current levels of ROK support to be equitable. He pointed
out that the much of the ROK burdensharing contribution flows
back into the South Korean economy and cautioned that U.S.
fiscal and military realities were such that the USFK
Commander would likely need to remove some military assets
from the Peninsula to where they could be supported properly.
That would lead to bad optics of more U.S. troops leaving
the Peninsula because the ROK would not share equitably in
the cost of keeping them here.


6. (C) Cho's next move was to provide some context for his
predicament by pointing out that because of widespread public
interest generated by the OPCON transfer issue, even most
high school students in Korea now knew that the ROK 2020
military modernization plan will cost Korean taxpayers around
621 trillion won. (Loftis noted that the ROKG has a
responsibility to educate its people on the benefits of the
alliance.) Cho then argued that ROK calculations indicate
they are currently paying around 41 percent of the
cost-sharing burden, not 38 percent as claimed by the USG.
While electricity is the most costly of the utilities, Cho
claimed that USFK is in actuality receiving a cheaper rate
than that paid by MND. He also argued that the inflation
rate is not as high as it used to be, and said USFK should
use monies it has reserved for construction because USFK does
not need to undertake construction this year, or next. No,
Ambassador Loftis replied, that money is already earmarked
for use as a part of our U.S. forces relocation plan. In
order for forces to remain on the peninsula, they must have
the facilities in which to live, work and train. Spending
those funds now for other purposes would invite further
delays in our effort to consolidate most of the U.S. forces
on Peninsula in the expansion of Camp Humphreys at Pyongtaek.


7. (C) Getting down to business, Cho revealed that his
proposal is, in fact, not his final proposal, but stated that
an increase (over the last SMA) is not in his mandate. The
heart of the question, Cho said, is that you want a big
increase and the ROKG does not, leaving a current gap of 120
billion won.


8. (C) NOTE: In the plenary session Cho referred to the
actual gap between their current proposal and ours totaling
170 billion won. However in both the first and second small
group meeting, he stated that the gap was 120 billion,
indicating the ROK is willing to adjust its proposal upwards
by 50 billion won from 630 billion to 680 billion. END NOTE.

OCTOBER 11 SMALL GROUP MEETING
--------------


9. (C) Negotiations were reconvened on the morning of October
11 with a one hour small group meeting constituting the same
3 3 participants as the day before. Ambassador Cho began the

second and final small group meeting by noting that the U.S.
side had never answered his question as to whether or not its
proposal was, in fact, its final offer. Ambassador Loftis
replied that he had some room to negotiate but very little,
pointing out that even a straight line proposal by the ROK
would amount to a decrease when the current inflation rate
was added to the calculation. "We are looking for an
increase, he said, and we want that to get us to an equitable
50/50 split." He further pointed out that even if the ROK
were to agree to that, it would not come close to actually
covering 50 percent of all of the U.S. expenditures in Korea,
nor did we expect them to. Ambassador Loftis pointed out
that the emotional debate in Korean society over the OPCON
issue had demonstrated a widespread feeling of insecurity; a
concern that would now be aggravated by the October 9
announcement of a DPRK nuclear test. It was apparent that
the ROKG needed to take appropriate steps to reassure its
populace that the U.S.-ROK alliance remained strong and a
true partnership. An agreement to split the burdensharing
cost equally would send such a message to the Korean people
and reassure Washington that the ROKG shares the belief of
its people that the alliance is both needed and valued by
South Korea. "We are looking for a statement from you that
this is a valued alliance," Loftis concluded.


10. (C) Ambassador Cho presented two primary arguments in the
second small group meeting. First, he said the baseline for
this negotiation should be the bottom line of the last
negotiation. That logic, he claimed, is universally
accepted. Second, he again argued that it was proper to
negotiate from a "needs-based" approach, rather than what he
described as the U.S. "holistic" approach. Ambassador Cho
explained that Korean ministries were required to provide
very detailed information to the National Assembly not only
on the SMA but across the entire range of government
expenditures. He proposed the formation of a working group
to discuss what additional information MOFAT and MND need to
fulfill their responsibilities to answer the Assembly's
questions. The U.S. agreed.


11. (C) Cho asked Ambassador Loftis if he would say if USFK's
funding realities had worsened in recent years. The
Ambassador and General Thiessen both responded that fighting
the Global War on Terror has made the U.S. military both less
willing and less able to make up for any shortfall in SMA
funding provided by the ROK.


12. (C) Using the same figure he had mentioned in the
previous day's small group meeting, Cho stated that the
remaining task for both sides was to close the gap between
680 and 800 billion won. "I now fully understand your point
of view and hope you better understand the ROK's position,"
Cho added. He noted that because of developments such as the
DPRK announcement of a nuclear test, the OPCON issue, the
Yongsan Relocation Plan (YRP) and Land Partnership Plan
(LPP),and U.S. troop reductions on the Peninsula, it seemed
that the whole alliance picture was changing. Cho said that
to date, the ROK approach has been more in line with the way
it had negotiated past agreements, but concluded that "what I
am hearing is that the United States is asking us for a
change in our thinking."

OCTOBER 11 PLENARY SESSION
--------------


13. (C) Upon conclusion of the small group meeting, Cho began
the second plenary session by stating that although these
small group meetings have been productive, the contrasting
ways the two sides approach the SMA issue as well as the
large gap in proposed funding amounts (630 billion won for
the Koreans, 800 billion won for the Americans) show that the
negotiations have reached a difficult stage. On a more
positive note, the head of the ROK delegation made the point
that there was now a better understanding of each other's
positions, both countries were looking towards the same
direction, and the value of the alliance was more clear now
than it was last week. Cho proposed that the next round of
negotiations to be held in Washington possibly at the end of
October or early November after the Security Consultative
Meeting. Because the ROK fiscal year begins on January 1 and
the National Assembly requires one and a half months to

process all budget requests, Cho stated that it would be
preferable for negotiations to be completed by early
November. Cho moved to the question of how to portray the
outcome of this round of discussions to the press. He stated
that the ROK side has made it consistent policy to admit to
the Korean press that the U.S. and Korea have very different
positions (without going into specific figures) but that they
hoped to bridge that gap in the spirit of the alliance.


14. (C) Ambassador Loftis responded that even though the two
parties were unable to close this gap, they had now--thanks
to previous rounds of talks--reached the point where they
could make progress and agreed with the ROK approach not to
conduct negotiations 'through the press,' Loftis closed the
session by wholeheartedly agreeing with the strength of our
alliance and stating that although we have not reached a
conclusion yet, we have made progress in the spirit of the
alliance and friendship.

BLUE HOUSE MEETING WITH DNSA SUH
--------------


15. (C) Ambassador Loftis concluded his visit to Seoul with
an October 11 meeting at the Blue House with Deputy National
Security Advisor (DNSA) Suh Choo-suk, rehearsing in broad
terms the points he had made with Ambassador Cho and asking
Suh to consider the political ramifications of yet another
contentious issue in the Alliance. Suh introduced himself as
a former academic specializing in U.S.-ROK military
relations. Because of his research in that area, Suh claimed
he was familiar with the cost sharing issue and knew how
important it was. He noted that the SMA talks had never been
easy, going back to their beginnings in the 1980s, and
commented that this negotiation also appeared to be a very
difficult one.


16. (C) DNSA Suh stated that just as the USG had to be
responsive to the will of the U.S. Congress, so too does the
ROKG have to think about its own National Assembly where, Suh
said, "the situation is not easy at all." OPCON transfer,
the Yongsan Relocation Plan, and the Defense Reform 2020 plan
all require financial resources, making it difficult to
persuade people to pay more for SMA, Suh explained. The
Korean people have a simple view of this. They think they
are paying for relocation of USFK and that USFK is reducing
its forces. Paying more for SMA therefore doesn't make sense
to them, Suh said. He nonetheless pledged to work hard to
come up with a more creative solution. "I thought our
proposal was reasonable and balanced, but given the great
differences that remain between our two positions I will now
reassess the situation and find a way to readjust," Suh told
Loftis. He urged the U.S. side to work with their Korean
counterparts to develop objective data that would allow
people on both sides to view the process as a transparent
one. "We need to come up with a plan that will make both
your Congress and our National Assembly happy," Suh advised.

PARTICIPANTS:
--------------


17. (SBU) U.S. Delegation:

Ambassador Robert Loftis, Senior Advisor, Bureau of
Political-Military Affairs (PM)
Major General Duane Thiessen, Assistant Chief of Staff J5,
USFK
Mr. Joseph Yun, Political Minister Counselor, U.S. Embassy
Seoul, DOS
Commander Thomas Herold, Judge Advocate General's Corps
Mr. David Wolff, Political Military Chief, U.S. Embassy
Seoul, DOS
Colonel Christopher Dinenna, Chief of J5 Strategy and Policy
Division, USFK
Mr. Mark Shoemaker, International Relations Officer, US SOFA
Secretariat, USFK

SIPDIS
Lieutenant Colonel Phillip Janzen, Military Advisor, PM, DOS
Lieutenant Colonel William Conwell, Chief of J5 Policy
Analysis Branch, USFK
Dr. Warren Switzer, International Relations Officer, J5
Policy Analysis Branch, USFK
Mr. Andrew Ou, Foreign Affairs Officer, East Asian and

Pacific Affairs Bureau/Korea, DOS
Ms. Shawn Duncan, Pol-Mil Officer, U.S. Embassy Seoul, DOS


18. (SBU) ROK Delegation:

Ambassador Cho Tae-yong, Director General, North American
Affairs Bureau, MOFAT
Mr. Kim Hong-kyun, Sr. Coord. for ROK-US Security
Cooperation, MOFAT
Mr. Lee Jeong-kyu, Director, North America Division (NAD)
III, MOFAT
Mr. Chun Young-hee, First Secretary, NAD III, MOFAT
Lieutenant Colonel Seo Young-kwang, Advisor, NAD III, MOFAT
Mr. Nam Dae-hyun, Advisor, NAD III, MOFAT
Mr. Kim Jung-han, First Secretary, Bilateral Treaties
Division, MOFAT
Colonel Chun In-bum, Director, U.S. Policy Division, MND
Ms. Kim Sin-sook, Deputy Director, U.S. Policy Division, MND
Colonel Lee Jong-sik, Assist. Secretary to the President for
National Security Policy


19. (SBU) Small Group Participants:

Ambassador Robert Loftis, Senior Advisor, Bureau of
Political-Military Affairs, DOS
Ambassador Cho Tae-yong, Director General North American
Affairs Bureau, MOFAT
Major General Duane Thiessen, Assistant Chief of Staff J5,
USFK
Colonel Chun In-bum, Director, U.S. Policy Division, MND
Mr. David Jonathan Wolff, Political-Military Affairs Chief,
Embassy Seoul
Mr. Lee Jeong-kyu, Director, North America Division III, MOFAT


20. (U) Ambassador Loftis has cleared this cable.
VERSHBOW