Identifier
Created
Classification
Origin
06STATE190867
2006-11-22 22:50:00
CONFIDENTIAL
Secretary of State
Cable title:  

SMA NEGOTIATIONS ROUND V: TOWARDS THE FINAL ROUND

Tags:  KS PM PREL MARR MASS MCAP 
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DE RUEHC #0867 3262257
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TO RUEHUL/AMEMBASSY SEOUL PRIORITY 0000
INFO RUEHKO/AMEMBASSY TOKYO PRIORITY 0000
RUEKJCS/SECDEF WASHINGTON DC//OSD/ISA/EAP PRIORITY
RHMFISS/JOINT STAFF WASHINGTON DC PRIORITY
RHMFISS/CDR USPACOM HONOLULU HI PRIORITY
C O N F I D E N T I A L STATE 190867 

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/22/2016
TAGS: KS PM PREL MARR MASS MCAP
SUBJECT: SMA NEGOTIATIONS ROUND V: TOWARDS THE FINAL ROUND

Classified By: EAP/K ANDREW HYDE FOR REASONS 1.4(b) and (d).

C O N F I D E N T I A L STATE 190867

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/22/2016
TAGS: KS PM PREL MARR MASS MCAP
SUBJECT: SMA NEGOTIATIONS ROUND V: TOWARDS THE FINAL ROUND

Classified By: EAP/K ANDREW HYDE FOR REASONS 1.4(b) and (d).


1. (C) SUMMARY. Round Five of negotiations on funding
levels for the Special Measures Agreement (SMA) between the
United States and Republic of Korea (ROK) took place at the
State Department on November 13, 2006. Lasting one day, the
talks concluded with the two parties falling short of a final
figure for future South Korean contributions to United States
Forces Korea (USFK),s Non-Personnel Stationing Cost (NPSC).
Nevertheless, the Koreans appear to be moving away from their
insistence on further cuts in SMA to, at a minimum,
straightlining their contribution or even agreeing to a
moderate increase. In a series of small group, plenary, and
one-on-one meetings, the two sides discussed each other,s
specific methods of cost calculation, as well as larger
differences in how they interpreted the concept of equitable
contribution to the alliance. Both sides also spoke about
internal political pressures they faced in reaching an
agreement, and concluded this round of talks by committing to
what they hoped would be a final session of negotiations
later this month. END SUMMARY

--------------
MORNING THREE-ON-THREE MEETING
--------------


2. (C) The negotiations started with the smaller delegations
from both sides reviewing the results of an October 31
meeting in Seoul at the Ministry of Foreign Affairs and Trade
(MOFAT) that was held to review U.S. cost calculations and
consider some alternative ROK baselines in particular
categories. Heads of delegation Ambassador Robert Loftis and
Ambassador Cho Tae-yong agreed that this meeting had been
productive and led to a better understanding on both sides
about the basis and rationale for many of the expense
calculations.


3. (C) Next, Cho described the time pressures MOFAT faced to
wrap up the negotiations and deliver a proposal to the
National Assembly prior to the final approval of the national
budget by the end of the year. He remarked that incoming
Foreign Minister Song Min-soon, who was concerned that

protracted and acrimonious SMA negotiations would be
detrimental to the bilateral relationship, asked Cho to
continue discussions on a longer-term framework while trying
to craft a more immediate, short-term agreement under the
existing arrangements.


4. (C) Ambassador Cho expressed interest in the impact of
the reduced ROK SMA contribution for 2005-06 on USFK
operations, commenting that the major reductions had come in
the South Korean contribution to labor costs. He recognized
that more should be done in this area and was willing to
consider an agreement that would lift the ROK labor share
back up to its previous level of 71%. Cho noted, however,
that this increase would only offset a perceived upcoming
decrease in construction costs. Not decreasing construction
costs would be difficult*especially given how much the ROK
is paying for the relocation of the Yongsan garrison and the
ongoing drawdown in U.S. forces*but paying for an increase
would be even harder, he added. Thus, the overall Korean
offer would change little from the current level of 680
billion Won. Cho stated that this bottom-up approach was the
only way the government could defend a particular request
before the National Assembly.


5. (C) Ambassador Loftis remarked that the U.S. side was
confused by the ROK reference to specific sub-accounts. He
explained that we expected to have the freedom to move money
around among the various accounts and we will be considering
the overall ROK offer instead of tying funds to particular
functions. Addressing the U.S. perspective on those specific
accounts, Loftis pointed out that the lower amounts in the
current SMA had forced USFK to allow labor attrition to run
its course and there no longer was any further cushion on
labor levels. He emphasized that increased ROK support would
be essential to rectify this situation.


6. (C) Ambassador Cho said there was some inconsistency as
to how Yongsan relocation costs were applied to the NPSC
calculation; some U.S. costs were included while ROKG
expenses were left out. The U.S. side disputed this
assertion, pointing out how some ROK expenses such as
vicinity improvements were included and that many U.S. costs
had been left out. Returning to construction expenses, Cho
mentioned that he could consider maintaining them at the
current level, implying that along with the increase in labor
support, the ROK offer could rise to 720 billion Won. Loftis
urged greater ROK flexibility, noting Congressional
expectations for a genuine increase in the ROK share. A new
Congress in January, he said, would undoubtedly have some
tough questions as to why the U.S. was spending over $4
billion annually on Korea-related expenses and would want to
closely examine trends in the Korean contribution.
Accordingly, we would expect at least a 780 billion Won
contribution from the ROK. Cho replied that to even justify
considering that number he would need some hard facts as to
how it was developed and what it would pay for.

--------------
AFTERNOON PLENARY SESSION
--------------


7. (C) After the 3-on-3 meeting, Ambassadors Loftis and Cho
convened the plenary session and conveyed that although they
made some progress, a further round of talks in Seoul would
be necessary to conclude the negotiations. Ambassador Cho
stated that he would aim to prepare something "very close to
a final proposal" at this next round of talks and hoped that
this proposal would result in a conclusion that was
reasonable to both sides.


8. (C) For most of the remainder of the plenary session, the
ROK side explained their calculations of direct and indirect
contributions to NPSC. Lee Jeong-kyu, Director of MOFAT,s
North American Division III, started by pointing out the
categories with the largest differences in U.S. and ROK
figures: foregone rent, utilities, rent, and vicinity
improvements. In summary, Lee said that according to South
Korean calculations, the ROK had paid 42.9% of total costs in
2005, which he claimed was 3% to 4% different from the U.S.
figure.


9. (C) Ambassador Loftis responded by asking the Koreans if
the ROKG was moving towards using percentages as the basis
for SMA calculations and discussion. Lee replied in the
negative, and continued to explain how the ROKG had surveyed
forty-five institutions (in the central and local governments
as well as in the private sector) during a four to five month
period to come up with their financial figures.


10. (C) Ambassador Loftis next asked what kind of time
constraints the Korean delegation faced in submitting a
proposal to their National Assembly. Ambassador Cho replied
that the proposal for 2006 had to be submitted in early
December 2005, but pointed out that even before this step,
the proposal had to undergo an internal clearance procedure
at MOFAT which could take two to three weeks. Kim Jung-han,
First Secretary in MOFAT,s Bilateral Treaties Division,
interjected with the fact that last year, the entire
process*which included clearance procedures at both his
ministry and at the Ministry of Legislation before being
submitted to the National Assembly*took nearly two months.
Ambassador Loftis emphasized that getting it right, was
more important than completing an agreement quickly; in
response, Ambassador Cho reminded the room that the National
Assembly could reject a late submission for inclusion in the
following year,s budget.


11. (C) In closing, Ambassador Cho pledged to submit a
proposed amount of South Korea,s contribution through the
ROKG senior leadership in the next week, hopefully in time
for a final round of negotiations in Seoul in late November.
He agreed to phone Ambassador Loftis with that figure by
November 24. The plenary session ended with both heads of
delegation reiterating the importance of the bilateral
alliance and expressing satisfaction with their joint efforts
to reach a solution.

--------------
AFTERNOON ONE-ON-ONE MEETING
--------------


12. (C) At the end of the day, Ambassador Loftis invited
Ambassador Cho to a one-on-one meeting and presented the
USG,s rock bottom line of 752 billion Won for 2007 and 752
billion Won plus 3% for 2008. Loftis stated that although we
preferred a third year at another 3%, we would accept a two
year agreement on these terms. Ambassador Loftis explained
that he did not want Cho to expend a lot of political capital
to get the Korean proposal up to 720 billion Won, only to
have us reject it as inadequate. He further stated that
these were real bottom line figures, given to Cho in the
interest of meeting his requirement to conclude an agreement
by the end of the year. Loftis emphasized that he was
providing Cho with our real redlines: if the Koreans met
those figures we would have an agreement. If the Koreans
returned with an offer below those figures, he could not
predict how long it would take to get a U.S. response.
Moreover, settling on anything less than 752 billion Won
would require the U.S. to deliberate on what adjustments to
our force structure would have to be made to meet the
shortfall in Korean contributions.


13. (C) Ambassador Cho responded that these frank exchanges
were very helpful for him to gain interagency support in
Seoul. His initial instructions were to make a similar cut
in the SMA as in the previous agreement; and if that was not
possible, to try to negotiate a straight line rollover. Cho
conceded that U.S. arguments, as well as the working group
meetings on adjustments, made a powerful case to justify an
increase in ROK contributions. Upon his return to Korea, Cho
stated that he would argue that the ROK should look at
getting back to the 2004 figure of 740 billion Won and
perhaps higher, but made it clear that it would be very
difficult for him to convince the others. Cho also pressed
for a three-year agreement, and stressed the need for a fresh
look at the whole SMA process to avoid lengthy and
contentious negotiations.

--------------
PARTICIPANTS
--------------


14. (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
Lieutenant Colonel Phillip Janzen, Military Advisor, PM, DOS
Commander Thomas Herold, Judge Advocate General,s Corps
Colonel Christopher Dinenna, Chief of J5 Strategy and Policy
Division, USFK
Mr. Mark R. Shoemaker, SOFA Secretariat, USFK
Lieutenant Colonel William Conwell, Chief of J5 Policy
Analysis Branch, USFK
Ms. Mary Beth Morgan, Country Director for Korea, ISA/APA, OSD
Mr. Andrew Hyde, ROK Unit Chief, Office of Korean Affairs, DOS
Mr. Andrew Ou, ROK Desk Officer, Office of Korean Affairs, DOS


15. (SBU) ROK Delegation:
Ambassador Cho Tae-yong, Director General, North American
Affairs Bureau, MOFAT
Mr. Lee Jeong-kyu, Director, North American Division III,
NAAB, MOFAT
Colonel Chun In-bum, Director, U.S. Policy Division, Ministry
of National Defense
Mr. Chun Young-hee, First Secretary, NAD III, NAAB, MOFAT
Mr. Kim Jung-han, First Secretary, Bilateral Treaties
Division, MMOFAT
Lieutenant Colonel Seo Young-kwang, Advisor, NAD III, NAAB,
MOFAT
Ms. Kim Sin-sook, Deputy Director, U.S. Policy Division, MND
Mr. Jeong Yeon-doo, First Secretary, ROK Embassy in U.S.A.


16. (U) Ambassador Loftis has cleared this cable.
RICE