SCENESETTER FOR THE DEPUTY SECRETARY'S VISIT TO

S E C R E T SEOUL 001529

SIPDIS

FROM THE AMBASSADOR FOR DEPUTY SECRETARY STEINBERG
DEPARTMENT FOR D, EAP, EAP/K

E.O. 12958: DECL: 09/24/2019
TAGS: OVIP PGOV PREL ECON SOCI KN KS
SUBJECT: SCENESETTER FOR THE DEPUTY SECRETARY'S VISIT TO
SOUTH KOREA, SEPTEMBER 29-30

Classified By: Ambassador D. Kathleen Stephens. Reasons: 1.4 (b/d).

Welcome Back
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1. (C) Mr. Deputy Secretary, all of us at Embassy Seoul
warmly welcome you back to Korea. Your visit comes as we are
in a sweet spot in the relationship, with a strongly
pro-American president who has largely recovered from last
year,s debacle on the importation of American beef and is
committed to working with us. The ROK has placed the DPRK
nuclear issue firmly at the center of North-South relations.
More broadly, President Lee,s determination to build a
"Global Korea" will offer opportunities to expand our
strategic cooperation beyond the Korean Peninsula, although
we will have to be sensitive to ROK concerns that such
cooperation is not a one-way relationship determined by the
U.S. agenda.

The Korean Political Scene
--------------


2. (C) Lee,s rising poll numbers will strengthen his ability
to work with us on difficult issues. One recent poll had his
approval ratings at 46 percent, up 15 points from July. Most
analysts attribute the improvement to Lee,s effort to move
toward the political center, although the improving economy
and the disarray of the opposition (which has approval
ratings in the mid-20s) have also helped. Despite his
growing popularity and the sizable majority that Lee,s Grand
National Party (GNP) holds in the National Assembly, the
president has encountered difficulty in advancing
legislation, due largely to the GNP,s own low approval
ratings and obstructionist tactics by the opposition.


3. (C) A recent cabinet reshuffle however, could break the
deadlock. On September 3, the Blue House replaced six
ministers, including the prime minister and defense minister.
The prime minister nominee, Chung Un-chan, was a bold choice
that introduced a new, potentially influential player to the
political field. An economist and former president of Seoul
National University, Chung was touted as a possible candidate
for president in 2007 and has been critical of Lee's economic
policies. If Lee and Chung can work together, they could
control the political center. The risk for Lee is that Chung
could leave the administration after a brief tenure and fill
the leadership void in the opposition. Chung is expected to
be confirmed and take office on September 29, although he
continues to take a rhetorical pounding from the National
Assembly about tax problems and his son's U.S. citizenship.

North Korea: First Family Reunions in Two Years
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4. (C) At every level, ROK foreign policy is currently
dominated by experienced America hands who believe deeply
that the ROK must carefully coordinate its policies with us.
Seoul has completely jettisoned the policy of the Roh
Moo-hyun years that attempted to separate the nuclear issue
from North-South relations, and President Lee has firmly told
the DPRK that the nuclear issue is now central to relations
with Pyongyang. Your interlocutors will repeat this
position; in turn, they will want to be reassured that the
United States is committed to multilateral talks on the
nuclear issue and that we will not enter into a bilateral
negotiation with the DPRK.


5. (C) Your visit will coincide with the resumption of
reunions between DPRK and ROK family members who were
separated during the Korean War. Although the media will be
filled with emotional scenes of family members seeing each
other for the first time in 60 years, senior ROKG
interlocutors have told us they do not expect the reunions to
generate public pressure on the Blue House to take a more
flexible line on assistance to the north.

Global Security Issues: Following Through on Afghanistan
-------------- --------------


6. (S) The Blue House is eager to expand U.S.-ROK cooperation
on global security issues. Seoul is planning to provide more
assistance and training in Afghanistan, including building a
new hospital and a training center in Bagram. The ROK has
also pledged USD 500 million (USD 100 million a year for five
years) in financial support for the Afghan Army. Senior ROKG

officials have assured us that this support is on track and
will come from the ROKG's "reserve budget" which does not
require approval from the National Assembly. For domestic
political reasons, however, Seoul believes it is essential
that the request for ROK support come from the newly-elected
Afghan government. The ROK will send a "very high level"
representative to the inauguration of the new Afghan
president. According to our interlocutors, once the formal
Afghan government request is received, the ROKG will proceed
with its assistance.

Key Alliance Issues: Moving South...
--------------


7. (C) We are in the midst of a historic reconfiguration of
our military posture in South Korea, one that will reduce the
irritants that our large facilities in heavily-populated
areas create for the Korean public and that will position the
alliance for a generation to come (while simultaneously
improving our warfighting capability). The centerpiece of
this effort is the relocation of the headquarters of U.S.
Forces Korea (USFK) to a new, purpose-built headquarters 30
miles south of Seoul. Progress on the move continues but
unless ROKG funding and administrative obstacles are overcome
soon we will not meet the agreed 2014 completion date.
President Lee has voiced his support for the move but ROKG
interagency fumbling and budgetary pressures continue to
delay important decisions.


8. (C) In addition, we are working to consolidate over 100
U.S. military bases spread all across Korea into two key
strategic hubs south of the Han River, replacing a Cold
War-era military footprint with a modern and
better-positioned force posture. We seek to complete this
effort by the end of 2015, though that date may slip due to
delays on the ROK side. Finally, the transfer of wartime
operational control (OPCON) of South Korean forces from the
U.S. military to the ROK military in April 2012 is proceeding
and will give the ROK a leading role in its own defense
commensurate with its status as an advanced economy.

Global Hawk
--------------


9. (S) As part of OPCON transition, DoD will phase out
piloted U.S. Intelligence, Surveillance and Reconnaissance
(ISR) missions in Korea beginning in 2012. The U.S. received
an official request in July from the ROKG for pricing and
availability data for the acquisition of the U.S.-produced
Global Hawk Unmanned Aerial Vehicle (UAV). If the ROK
decides to acquire Global Hawk in mid-2010, delivery would
occur no earlier than 2013. In the interim, U.S. Global
Hawks based in Guam will perform ISR taskings on North Korea.
According to DoD, these Global Hawks will be responsible for
the whole Pacific Ocean area of responsibility, would not be
dedicated to the Korean Peninsula, and would not fully meet
ISR requirements for North Korean territory and activities.
The United States understands the ROK,s need for enhanced
ISR capabilities and is carefully reviewing the ROK,s
request for Global Hawk.

Korea-U.S. Free Trade Agreement
--------------


10. (C) The Korea-U.S. (KORUS) Free Trade Agreement is a
critical element of our effort to anchor Korea to the United
States for the next generation. In addition to the
substantial trade benefits, the psychological effects of the
KORUS FTA would be vast, both as symbol of the American
commitment to northeast Asia and in tying Korea to the United
States during a time of rising Chinese influence. President
Lee has faced criticism for his inability to generate
momentum for the FTA in Washington. President Obama's
statement at the April G20 meeting with Lee, that the United
States wanted to find a way forward on the FTA, allayed some
of the anxiety in Seoul and enabled Lee to push the FTA
through the committee of jurisdiction in the National
Assembly. A full plenary vote has not been scheduled, but
the FTA is expected to pass once there is some sign of
movement in Washington. USTR by the end of August had
received over 500 comments (over 250 were from firms) on the
FTA in response to the Federal Register notice asking for
stakeholder views. USTR is reviewing the comments to ensure
it understands the exact nature of the concerns and to
develop recommendations for addressing them. While the ROKG

waits for U.S. action on ratification, it is moving forward
with FTA negotiations with a broad range of countries
(including India, the European Union, Australia and New
Zealand). American firms will be competitively disadvantaged
if Korea,s other trading partners enjoy FTAs while we do not.

The Economy: Heating Up...
--------------


11. (SBU) Battered by the global economic crisis one year
ago, the ROK's economy is now surging. Driven by robust
government spending, sustained interest rate cuts and a
weaker currency, South Korea,s GDP grew at 2.6 percent in
the second quarter, the fastest quarter-on-quarter growth
among all OECD nations. The benchmark KOSPI stock index,
which bottomed out in October 2008 at 940, has soared to
1,718, well above pre-Lehman levels.
... and The Won is Strengthening
--------------


12. (SBU) Current account surpluses and foreign investment in
the Korean market have led to dramatic recovery in the value
of the won, which has appreciated against the dollar from
1,570 in early March to 1,204 on September 22. Most economic
forecasts project continued strengthening of the won over the
coming year toward levels not seen since the summer of 2008.
Nonetheless, President Lee and Finance Minister Yoon
Jeung-hyun insist it is too early to discuss exit strategies.
Some are concerned that the fiscal stimulus and loose
monetary policies could lead to speculative real estate
bubbles or inflation, but the ROKG is on alert to combat such
developments. Going into the Pittsburgh G20 Summit, Korea
sees most global issues along the same lines that we do.
South Korea, as the G20 chair for 2010, is keen to host a G20
Summit in 2010 and will be seeking U.S. support.

STEPHENS