A/S HILL'S SEOUL MEETINGS: ROKG NOT PLANNING

C O N F I D E N T I A L SEOUL 003592

SIPDIS

SIPDIS

E.O. 12958: DECL: 10/10/2016
TAGS: PREL PGOV KS KN
SUBJECT: A/S HILL'S SEOUL MEETINGS: ROKG NOT PLANNING
SIGNIFICANT STEPS TOWARD DPRK TO IMPLEMENT UNSCR 1718

Classified By: AMB. Alexander Vershbow. Reasons 1.4 (b/d).

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SUMMARY
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1. (C) Assistant Secretary Hill's October 17-18 meetings in
Seoul revealed that, while Seoul said it was prepared to
implement UNSCR 1718, the ROKG had decided that the
resolution did not specifically target North-South engagement
projects, such as the Kaesong Industrial Complex and Mount
Kumgang tourism. South Korean interlocutors also showed
reluctance to participate fully in the Proliferation Security
Initiative (PSI). Asked what the ROKG was doing in response
to the October 9 test, South Korean officials harked back to
the USD 350 million in annual rice-and-fertilizer aid that
was suspended after the July missile launches, but cited only
minimal additional steps planned now. A/S Hill pressed the
South Koreans on the need to send a strong political message
by taking steps beyond those adopted after the missile tests
in July. He requested the ROKG to come to an early agreement
on PSI and seriously consider restricting Kumgang tourism,
which provided no reform-oriented benefits, unlike the
Kaesong Industrial Complex. END SUMMARY

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ACTING FOREIGN MINISTER: ROKG WELCOMES UNSCR 1718
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2. (C) Acting Foreign Minister Yu Myung-hwan told A/S Hill
during an October 17 meeting that the ROKG welcomed UNSCR
1718 and would implement it faithfully. He reviewed steps
that the ROKG had already taken, saying that the suspension
of bilateral economic assistance (rice and fertilizer) since
the July missile launches was most significant, since the
program had provided the DPRK USD 1.4 billion worth of
assistance during the last three years, or about USD 350
million a year.


3. (C) On major engagement projects, Yu said the DPRK
government received about USD 600,000 a year from the Kaesong
Industrial Complex (KIC) but a more significant USD 12
million per year from the Mt. Kumgang tourism area. A/S Hill
said that, speaking personally, he saw the merit of KIC as a
long-term investment in human capital and economic reform but
saw less benefit in the Mt. Kumgang project, which seemed to
mainly supply cash to the DPRK regime. Yu replied that he
had made similar comments to the National Assembly and the
ROKG was reviewing the issues. The problem was that Hyundai
Asan had invested a significant amount in the project and
would go bankrupt if it were stopped. A/S Hill countered
that the ROKG needed to be careful not to be seen as doing
nothing in the face of the DPRK's nuclear test.


4. (C) Turning to the President Roh Moo-hyun's October 13
meeting with Chinese President Hu Jintao, Yu said that
Presidents Roh and Hu agreed that neither country would
recognize the DPRK as a nuclear power, and they also agreed
on the continued usefulness of the Six-Party Talks, with Hu
emphasizing the need to keep the door open for the DPRK to
return to the talks.


5. (C) A/S Hill agreed that while it was important for the
DPRK to return to the talks, the North Koreans must
understand that there would be consequences for their
actions. A/S Hill suggested that the ROKG could help ease
the heavy skepticism in Washington about the possibility of
achieving a diplomatic solution by focusing on meaningful
enforcement of sanctions against the DPRK. The ROKG should
not put itself in the position of being seen as doing nothing
in response to the DPRK test, he said.

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SIX-PARTY TALKS REP.: BEYOND SANCTIONS, DIPLOMACY NEEDED
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6. (C) Special Representative for Korean Peninsula Peace and
Security Affairs and the ROKG's representative to the Six
Party Talks Chun Yung-woo began an October 17 dinner with A/S
Hill by noting what he saw as two benefits of UNSCR 1718:
that it made nuclear dismantlement a legal obligation for the
DPRK under the UN Charter's Chapter VII, and that it retained
flexibility to take further actions as needed.



7. (C) Chun also analyzed the financial impact of UNSCR 1718
and additional sanctions coming into effect, saying they
would have a serious impact on the DPRK. He estimated that
the suspended ROKG rice-and-fertilizer aid meant that the
DPRK was foregoing USD 270 million worth of commodities this
year; that Japan's sanctions would cost the DPRK USD 120
million in cash because of foregone trade; that UNSCR 1718
sanctions would cost the DPRK about USD 100 million in
foregone exports of arms and missiles (based on an ROKG
estimate that the DPRK exported USD 110 million worth of arms
in 2005); and that Chinese sanctions, to be determined, would
have a serious psychological impact. The net financial
effect (which totals to USD 490 million) was equivalent to
10-20 percent of the DPRK's total annual exports, and thus a
serious bite.


8. (C) Even so, Chun continued, we should not underestimate
the DPRK's willingness to sustain this type of damage. Even
if the DPRK had to continuously tighten its belt, the regime
would remain determined to keep its nuclear weapons, which it
regarded as a means of garnering more respectful treatment
from the USG. Hence, the international community needed to
keep working toward a diplomatic solution. Chun said there
was resentment in ROKG circles that the USG had not seen fit
to go forward with a U.S.-ROK proposal to bring the DPRK back
to the table, after such an option had been discussed in the
weeks following the September 14 summit. He said that a
sincere U.S.-ROK approach to the DPRK, even if not successful
in inducing the DPRK's return to negotiations, would better
prepare the ROK public for a shift to a tough stance toward
the North.


9. (C) On PSI, Chun said that the ROKG agreed with the
substance of the initiative, but noted that it already had
the right under its maritime agreement with the DPRK to
search any ships. However, National Assembly members,
especially much of the governing Uri party, had strong views
against PSI, seeing it as a triggering mechanism for armed
conflict. Chun agreed with the Ambassador's suggestion that
the ROKG should begin to demystify PSI so that the Korean
public understood that it was based on legal means and
voluntary participation, and thus not a recipe for war. Chun
summed up by saying that Washington wanted the ROK to join
PSI to send a political signal (since, in operational terms,
the ROKG already had the needed authority to search DPRK
ships),but that the ROKG had trouble signing on for domestic
political reasons.


10. (C) Noting the Secretary's planned October 19 visit, A/S
Hill and the Ambassador said that the ROKG should not be seen
as doing nothing new in the face of the DPRK's nuclear test.
Chun said that the ROKG may have used up too much of its
leverage when it suspended humanitarian aid following the
missile launches. He asked that stress be placed on the
chance for diplomacy. Chun also asked that for the three
activities now widely discussed in South Korea -- PSI, KIC
and Kumgang -- the Secretary should be mindful of domestic
sensitivities and answer press queries by stating that she
understood these were being reviewed by the ROKG.

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MINISTER OF UNIFICATION: LEAVE KUMGANG AND KAESONG ALONE
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11. (C) In an October 18 meeting, Minister of Unification Lee
Jong-seok struck a defensive tone about the flagship
engagement projects, KIC and Kumgang, repeating explanations
he gave the Ambassador on October 16 (reftel),that these
were private projects that ROKG could not touch; doing so
would bring costs (USD 1 billion compensation to Hyundai Asan
for losses at Kumgang),raise tensions, and adversely affect
the ROK economy. Lee complained to A/S Hill for commenting
to the press that Kumgang appeared to transfer funds to the
DPRK government without contributing to economic reform in
the North.


12. (C) Asked what the ROKG response to the DPRK nuclear test
should be, Lee cited the suspension of rice-and-fertilizer
aid announced in July, adding that the ROKG had also canceled
an agreement to exchange DPRK minerals for ROK light industry
materials, valued at USD 80 million per year. Lee said the
ROKG would watch the UNSCR 1718 Sanctions Committee closely

and implement further measures if needed. Lee also said that
the ROKG would no longer provide the approximately USD 3
million per year it has been spending in sponsoring students'
and teachers' trips to Mt. Kumgang.


13. (C) A/S Hill asked Minister Lee for his views on whether
the regime appeared to be under great stress. Lee noted the
difficulty of tracking changes in the DPRK, but said that the
range of decisionmakers working closely with Kim Jong-il had
become very curtailed, increasing the possibility that KJI
could go "beyond rationality" in his decisions. In general,
Lee said, instability in the DPRK was increasing -- which was
why the ROKG did not want to stoke tensions by suspending
engagement projects at this time, or by signing up to PSI.


14. (C) Lee said further that his impression was that elites
in the DPRK thought they had done a good job carrying out the
nuclear test. Their reasoning, Lee said, was that muddling
through the standoff with the United States was not enough.
Demonstrating a nuclear weapon was a life or death matter
intended to ensure respect from the U.S. Lee said that a
continuing atmosphere of stress would prompt the DPRK to
perform a second nuclear test. He asked A/S Hill to convey
to the Secretary that she emphasize not only sanctions but
also specific steps toward implementing a diplomatic
solution.
VERSHBOW