SMA NEGOTIATIONS ROUND VI: ONE LAST PUSH

C O N F I D E N T I A L SEOUL 004116 SIPDIS SIPDIS DEPARTMENT PLEASE PASS TO PM SENIOR ADVISOR LOFTIS E.O. 12958: DECL: 11/30/2016 TAGS: KS PM PREL MARR MASS MCAP SUBJECT: SMA NEGOTIATIONS ROUND VI: ONE LAST PUSH REF: SEOUL 03468 Classified By: POL/MC JOSEPH Y. YUN. REASONS 1.4 (b/d). ¶1. (C) SUMMARY: In a small group meeting and plenary session that followed, Ambassador Loftis and his ROK counterpart, Ambassador Cho Tae-yong, presented their respective negotiating positions on the 2007-2008 Special Measures (burden-sharing) Agreement (SMA). The ROKG proposed a contribution of 725.5 billion won in 2007. For 2008, they offered that amount plus an increase tied to the 2006 Consumer Price Index, which is expected to be approximately 3 percent. The ROK offer included the addition of 45 billion won over their earlier proposal, designed to make up for the equivalent shortfall in Korean labor costs resulting from the previous SMA. Ambassador Cho explained he could sell such an increase to the National Assembly, but said it would be extremely difficult to secure ROKG approval for anything beyond the figures he proposed. Ambassador Loftis responded by pointing out that the ROK proposal falls short of the USG "red line" of 752 billion won, and far short of our goal that the ROK pay 50 percent of USFK's non-personnel stationing costs. Both sides reviewed the draft SMA agreement. Each delegation suggested minor changes to the text which will now be reviewed by our respective legal experts. During a one-to-one meeting on November 30, Ambassador Cho told Ambassador Loftis that 725.5 billion won offer was predicated on the ROKG's assumption that, if accepted by the U.S., there would be no/no significant or visible adjustments to U.S. force posture. Ambassador Loftis responded that there could be no such guarantees. Ambassadors Loftis and Cho agreed to report the current status of the negotiations to their superiors and defense colleagues, and to meet again (via DVC) on December 5 at 6 p.m. (Washington time) to provide the response of their respective governments. END SUMMARY NOVEMBER 29 SMALL GROUP MEETING -------------- ¶2. (C) The Sixth Round of Special Measures Agreement (SMA) burden-sharing negotiations began with a small group meeting on November 29, 2006 at the Ministry of Foreign Affairs and Trade (MOFAT). During that opening session, both sides stated their negotiating positions. Ambassador Cho Tae-yong, the South Korean delegation head, summarized the ROKG proposal as follows: -- The ROK believes a short-term (no more than 2 year) transitional agreement with no increase is warranted because this is a transitional period in the U.S.-ROK Alliance, owing to U.S. military transformation and the drawdown of USFK troops on the Korean Peninsula. -- Having learned of the negative impact on USFK caused by the shortfall resulting from the previous SMA agreement, however, the ROK has decided to increase its proposal by approximately 45 billion won. -- That additional amount is designed to make up for the shortfall in Korean labor costs that occurred as a result of the previous agreement. -- The ROK proposal would "maintain present funding" levels in the other three SMA categories. -- The overall ROK proposal now totals 725.5 billion won in ¶2007. -- For 2008, they offer that amount plus an increase tied to the Korean Consumer Price Index (CPI). (NOTE: The 2006 CPI would be used when it becomes available in January 2007. The 2005 CPI was approximately 3 percent. END NOTE). ¶3. (C) Ambassador Cho characterized the ROK proposal as his "final offer," stressing that it had been approved only after weathering considerable dissent in the ROK inter-agency principals committee (PC). He explained that he sold the additional 45 billion won amount to the PC, and would be able to sell it to the ROK National Assembly as well, because it directly affects Korean laborers. He cautioned, however, that it would be extremely difficult for him to secure the approval of the executive and legislative branches of his government for anything beyond the 725.5 billion won figure he proposed. ¶4. (C) Cho warned that time was running out to get the agreement through the National Assembly by the end of the year. He said the ROK therefore sought to conclude the negotiation within the next week to allow sufficient time for gaining legislative branch approval. To hasten the process, Cho said he had decided to drop the ROK request for consideration of its in-kind contributions. He claimed that with time running out his latest proposal was, in fact, the ROK bottom line, and not merely a negotiating tactic. "I have no other offers up my sleeve," Cho insisted. ¶5. (C) Ambassador Loftis thanked the ROKG for its willingness to raise its proposal from its previous offer of 680 billion won to 725.5, but pointed out that the new proposal still falls short of the USG "red line" of 752 billion won, and far short of reaching 50 percent of USFK's non-personnel stationing costs. ¶6. (C) Ambassador Loftis also informed Cho that he had already run the new ROK proposal (which Cho had previewed to him on November 23) by his superiors in the Department, and his colleagues at DOD, but that he was not authorized to finalize anything less than USFK's red line. He warned Cho that USFK would have to compensate for any SMA shortfall, including the possibility of moving part of our force structure off the peninsula. Although no decisions have been made, the ROKG should be aware that such moves could/could include combat units. He stated that the current ROK proposal does not meet the U.S. goal of achieving an equitable arrangement, and asked Cho to take the ROK proposal and USG response back to his government for further consideration. NOVEMBER 29 PLENARY MEETING -------------- ¶7. (C) During the follow-on plenary session later in the day, Ambassadors Loftis and Cho summarized their aforementioned negotiating positions in front of the members of both delegations. Ambassador Cho stated that although the task was not an easy one, an agreement could be reached if approached with "a common attitude." Ambassador Loftis responded that he too hoped the two delegations would reach a conclusion soon, but added that in getting to that point the importance of the U.S.-ROK alliance and the U.S. ability to defend the ROK ought to be remembered as well. ¶8. (C) Expressing regret for the lack of U.S. enthusiasm for his proposal, Ambassador Cho stated that while the difference between the ROK proposal and USFK red line (a gap of approximately 27 billion won) "may not be small, it was also not very big." He said he was therefore "not convinced" that cuts being considered by USFK to address an SMA shortfall would be visible or substantial. Ambassador Loftis and USFK Assistant Chief of Staff Major General Duane Theissen reminded the ROK side that the actual difference was 106 billion won, far greater than 27 billion won mentioned by the ROK. Every dollar or won not contributed to USFK by the ROK would compel the Command to cut equivalent costs somewhere else, they explained, pointing out that the repercussions of a ROK shortfall could go beyond the sum of 27 billion won. Loftis stated it was not clear what the Command would cut because no decisions had been made, but that the ROK should understand that the Commander could not, under any circumstances, allow the stationing of hollow forces on the Peninsula. ¶9. (C) Ambassador Cho responded by once again reiterating the domestic political difficulties he would face in attempting to gain approval from the National Assembly for a better offer. REVIEW OF THE SMA DOCUMENT -------------- ¶10. (C) During the plenary meeting, the two delegations reviewed the text of the draft SMA agreement. Each side suggested minor changes to the language and agreed that although the revisions appeared to be non-substantial, the new text would have to be reviewed by their respective legal experts. SONG MIN-SOON SEEKS A BETTER PROCESS -------------- ¶11. (C) In both the small group and plenary sessions, Ambassador Cho stated that the ROKG preferred no more than a two-year SMA agreement. Cho explained that Foreign Minister-designate Song Min-soon "felt very strongly" that a new process needed to be developed in order to spare the Alliance from the "always painful" SMA negotiations. Song wants the U.S. and South Korean governments to begin discussing how to reform the process in January 2007, reach agreement on new procedures by the end of that year, and utilize those new procedures, starting in 2008, to negotiate the next SMA. ¶12. (C) Ambassador Loftis responded by noting that if the ROK regards the next SMA as a transitional document, it would be more logical to reach three-year agreement, because U.S. military transformation on Peninsula (and the construction needed to carry it out) will not be completed in less than three years. He also pointed out that because Song Min-soon would be in office for, at most, the remaining 15 months of the current Roh Administration, he will have left ROK government service before the next SMA negotiation, even if only a two year agreement is reached this time around. 1-ON-1 DISCUSSIONS -------------- ¶13. (C) Ambassador Cho and Loftis met for a heads of delegation session over breakfast on November 29. Ambassador Cho reiterated that he was unable to go beyond his "final offer" of 725.5 billion won. Moreover, the ROKG assumes that if the U.S. accepts the ROKG offer, there would be no need to make any visible or substantive cuts to the U.S. force structure. In particular, they would not want to see any further reductions to U.S. combat forces beyond those already agreed. Ambassador Loftis responded that the ROKG should not operate on this assumption. At 725.5 billion won of SMA, there would be a shortage of funds that would have to be addressed. While stressing that no decisions had been made, the U.S. was looking at all of its options, and those options included the possibility of taking some combat forces or capabilities out of Korea. The ROKG should not be surprised by this statement, as it had been made in several SPI sessions, during the SCM/MCM and during Congressional testimony by senior DOD officials. Ambassador Cho said that some in his government would ask why the ROKG should offer any increase, seeing that the U.S. could be pulling assets off the peninsula. Why not simply offer a rollover? Ambassador Loftis noted that pulling back the Korean offer would be very poorly received in Washington, and would certainly result in the U.S. having to make even greater adjustments. He concluded that the USG was not trying to embarrass the ROKG, but we simply have to face fiscal realities. PREPARING FOR THE END GAME -------------- ¶14. (C) Ambassadors Loftis and Cho agreed to report the outcome of the 6th round of SMA negotiations to their superiors and defense colleagues. They agreed to meet again (via DVC) on December 5 at 6 p.m. (Washington time) to provide the responses of their respective governments. ¶15. (C) COMMENT: We do not anticipate that the ROKG will come in with a higher figure, as Cho indicated that some senior ROKG officials had "hardened" their stance against an increase in response to the potential movement of assets. Ambassador Loftis recommends that we use the December 5 video conference to accept the ROKG offer as presented by Cho and finalize the SMA. This will give Cho barely enough time to complete his domestic requirements and send the SMA to the National Assembly before the end of the year. In accepting the ROKG offer, however, we would not/not accept the ROKG,s assumption that there be no changes to the U.S. force structure. END COMMENT. PARTICIPANTS: -------------- ¶16. (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 Commander Thomas Herold, Judge Advocate General's Corps Mr. David Wolff, Political Military Chief, U.S. Embassy Seoul, DOS (Small group notetaker) Colonel Christopher Dinenna, Chief of J5 Strategy and Policy Division, USFK Mr. Andrew Hyde, ROK Unit Director, EAP/K, East Asian and Pacific Affairs Bureau, DOS LTC Mike Finnegan, Office of the Assistant Secretary of Defense for International Security Affairs, DOD 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. Mark Shoemaker, International Relations Officer, US SOFA Secretariat, USFK SIPDIS Ms. Shawn Duncan, Pol-Mil Officer, U.S. Embassy Seoul, DOS (Plenary notetaker) ROK Delegation: Ambassador Cho Tae-yong, Director General, North American Affairs Bureau, MOFAT Mr. Lee Jeong-kyu, Director, North America Division (NAD) III, MOFAT Mr. Chun Young-hee, First Secretary, NAD III, MOFAT Mr. Nam Dae-hyun, Advisor, NAD III, MOFAT Mr. Kim Jung-han, First Secretary, Bilateral Treaties Division, MOFAT Ms. Kim Sin-sook, Deputy Director, U.S. Policy Division, MND Colonel Lee Jong-sik, Assist. Secretary to the President for National Security Policy 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 Mr. David Jonathan Wolff, Political-Military Affairs Chief, Embassy Seoul Mr. Lee Jeong-kyu, Director, North America Division III, MOFAT LTC Mike Finnegan, Office of the Assistant Secretary of Defense for International Security Affairs, DOD Mr. Chun Young-hee, First Secretary, NAD III, MOFAT Ms. Kim Sin-sook, Deputy Director, U.S. Policy Division, MND ¶16. (U) Ambassador Loftis has cleared this cable. VERSHBOW