Order Code IB98045
CRS Issue Brief for Congress
Received through the CRS Web
Korea: U.S.-Korean Relations —
Issues for Congress
Updated January 17, 2006
Larry A. Niksch
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
U.S. Interests in South Korea
Recent Issues
Relations with North Korea
Nuclear Weapons and the Six-Party Talks
North Korea’s Missile Program
Weapons of Mass Destruction
North Korea’s Inclusion on the U.S. Terrorism List
Food Aid
North Korean Refugees in China and Human Rights
South Korea’s Sunshine Policy and the Hyundai Payments to North Korea
Anti-Americanism and Plans to Change the U.S. Military Presence
FOR ADDITIONAL READING

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Korea: U.S.-Korean Relations — Issues for Congress
SUMMARY
North Korea’s decision in December
military interdiction against North Korea.
2002 to restart nuclear installations at Yongb-
China organized six-party talks among the
yon that were shut down under the U.S.-North
United States, China, Japan, North Korea,
Korean Agreed Framework of 1994 and its
South Korea, and Russia in mid-2003, but the
announced withdrawal from the Nuclear Non-
talks have made little progress. U.S. attempts
Proliferation Treaty create an acute foreign
to isolate North Korea in the talks have been
policy problem for the United States. Restart-
countered by North Korea’s strategy of threats
ing the Yongbyon facilities opens up a possi-
to leave the talks, the issuance of settlement
ble North Korean intent to stage a “nuclear
proposals, accusations that the United States
breakout” of its nuclear program and openly
plans an “Iraq-like” attack on North Korea,
produce nuclear weapons. North Korea claims
and denials that it has a uranium enrichment
that it has nuclear weapons and that it has
program. North Korea’s announcement of
completed reprocessing nuclear weapons-
February 10, 2005, suspending its participa-
grade plutonium that could produce four to six
tion in the talks appears aimed at creating a
atomic bombs. North Korea’s actions follow
long-term diplomatic stalemate on the nuclear
the reported disclosure in October 2002 that
issue.
North Korea is operating a secret nuclear
program based on uranium enrichment and the
Differences have emerged between the
decision by the Korean Peninsula Energy
Bush Administration and South Korea over
Development Organization (KEDO) in No-
policies toward North Korea. South Korea
vember 2002 to suspend shipments of heavy
emphasizes bilateral reconciliation with North
oil to North Korea — a key U.S. obligation
Korea and a policy more equidistant between
under the Agreed Framework.
the United States and China. The South Ko-
rean public has become critical of Bush Ad-
The main elements of Bush Administrat-
ministration policies and the U.S. military
ion policy are (1) demanding that North Korea
presence. Anti-U.S. demonstrations erupted -
totally dismantle its nuclear programs; (2)
in 2002, and Roh Moo-hyun was elected
withholding any U.S. reciprocal measures
President after criticizing the United States.
until North Korea takes visible steps to dis-
In 2003-2004, the Pentagon announced plans
mantle its nuclear programs; (3) assembling
to relocate U.S. troops in South Korea away
an international coalition to apply pressure on
from the demilitarized zone and Seoul. The
North Korea in multilateral talks; and (4)
United States will withdraw 12,500 troops
planning for future economic sanctions and
between the end of 2004 and September 2008.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
After two sessions of six party talks beginning in July 2005, the six governments issued
their first statement on the North Korean nuclear issue on September 19, 2005: a statement
of principles. In the statement, North Korea committed to “abandoning all nuclear weapons
and existing nuclear programs,” and returning to the Nuclear Non-Proliferation Treaty and
allow safeguards inspections by the International Atomic Energy Agency “at an early date.”
However, North Korea also received a major concession from the Bush Administration in
a clause in which the six parties agreed to discuss “at an appropriate time” North Korea’s
demand to receive light water nuclear reactors (LWRs). The statement did not address the
core issue in dispute between the United States and North Korea: the timing of
dismantlement of North Korea’s nuclear programs. The Bush Administration held before
and after the statement that the process of dismantlement must be an early stage in a
settlement process. North Korea insisted that dismantlement would be implemented only
after North Korea physically receives LWRs — a process that would take ten years or more.
In November 2005, North Korea instituted its second boycott of the six party talks,
demanding that the Bush Administration lift recent U.S financial sanctions against Banco
Delta Asia in Macau. The U.S. Treasury Department accused Banco Delta of laundering
counterfeit U.S. 100 dollar bills produced by North Korea. In other developments, North
Korea ordered the U.N. World Food Program (WFP) to cease food-donating operations at
the end of 2005. The Bush Administration responded by suspending a shipment of 25,000
of food to North Korea through the WFP. Pyongyang reinstituted the state rationing system
for food and reimposed quota and collection rules for collective farms. The United States
and South Korea agreed to begin negotiations to change the military command system under
which U.S. and South Korean forces operate in South Korea.
BACKGROUND AND ANALYSIS
U.S. Interests in South Korea
U.S. interests in the Republic of Korea (R.O.K. — South Korea) involve security,
economic, and political concerns. The United States suffered over 33,000 killed and over
101,000 wounded in the Korean War (1950-53). The United States agreed to defend South
Korea from external aggression in the 1954 Mutual Defense Treaty. The United States
maintains about 34,000 troops there to supplement the 650,000-strong South Korean armed
forces. This force is intended to deter North Korea’s (the Democratic People’s Republic of
Korea — D.P.R.K.) 1.2 million-man army. Since 1991, attention has focused on North
Korea’s drive to develop nuclear weapons (see CRS Issue Brief IB91141, North Korea’s
Nuclear Weapons Program, by Larry A. Niksch) and long-range missiles.
U.S. economic aid to South Korea, from 1945 to 2002, totaled over $6 billion; most
economic aid ended in the mid-1970s as South Korea’s reached higher levels of economic
development. U.S. military aid, from 1945 to 2002, totaled over $8.8 billion. The United
States is South Korea’s second-largest trading partner (replaced as number one by China in
2002) and largest export market. South Korea is the seventh-largest U.S. trading partner.
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Recent Issues
Relations with North Korea
The Bush Administration’s policy toward North Korea has been based on two factors
within the Administration. First, President Bush has voiced distrust of North Korea and its
leader, Kim Jong-il. Second, there are divisions within the Administration over policy
toward North Korea. An influential coalition consists of Secretary of Defense Rumsfeld and
his advisers, Vice President Cheney and his advisers, and proliferation experts in the State
Department and White House led by Under Secretary of State John Bolton. They reportedly
oppose negotiations with North Korea, favor the issuance of demands for unilateral North
Korean concessions on military issues, and advocate an overall U.S. strategy of isolating
North Korea diplomatically and through economic sanctions. Officials within this group
express hope and/or expectations of a collapse of the North Korean regime. A second
approach, advanced mainly by officials in the State Department and White House with
experience on East Asian and Korean issues, favor negotiations before adopting more
coercive measures; they reportedly doubt the effectiveness of a strategy to bring about a
North Korean collapse.
President Bush’s designation of North Korea as part of an “axis of evil” in his January
29, 2002 State of the Union address symbolized a policy that is aimed at reducing and/or
eliminating basic elements of North Korean military power, including nuclear weapons
and/or nuclear weapons-grade materials and missiles.
Nuclear Weapons and the Six-Party Talks.1 From 1994 to 2003, U.S. policy was
based largely on the U.S.-North Korean Agreed Framework of October 1994. The Agreed
Framework dealt with nuclear facilities that North Korea was developing at a site called
Yongbyon. Facilities included a five megawatt nuclear reactor and a plutonium reprocessing
plant. Two larger reactors were under construction. U.S. intelligence estimates concluded
that these plutonium-based facilities could give North Korea the capability to produce over
30 atomic weapons annually. North Korea had concluded a safeguards agreement with the
International Atomic Energy Agency (IAEA) in 1992, which required North Korea to report
all nuclear programs to the IAEA and gave the IAEA the right to conduct a range of
inspections of North Korea’s nuclear installations. However, North Korea obstructed or
refused IAEA inspections in 1993-94, including refusal to allow an IAEA special inspection
of a underground facility, which the IAEA believed was a nuclear waste site.
The Agreed Framework provided for the suspension of operations and construction of
North Korea’s “graphite-moderated reactors and related facilities” and the storage of 8,000
nuclear fuel rods that North Korea had removed from the five megawatt reactor in May 1994.
It provided to North Korea 500,000 tons of heavy oil annually until two light-water nuclear
reactors (LWRs) are constructed in North Korea. The United States was obligated to
facilitate the heavy oil shipments and organize the construction of the LWRs. The IAEA
monitored the freeze of the designated facilities and activities. The Agreed Framework
1 For assessments of diplomacy on the North Korean nuclear issues, see Sejong Institute (Seoul).
The Second Bush Administration and the Korean Peninsula. Papers presented at the 2nd Korea-U.S.
Security Forum, March 30-April 2, 2005.
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stated that before North Korea receives nuclear materials for the LWRs, it was obligated to
come into full compliance with its obligations as a signatory to the Nuclear Non-Proliferation
Treaty with regard to its past nuclear activities. Clinton Administration officials testified that
this clause obligated North Korea to allow IAEA inspection of the suspected waste site and
the stored fuel rods. They also testified that any additional North Korean nuclear programs,
including any secret programs, are covered by the 1992 safeguards agreement and are subject
immediately to IAEA safeguards, including inspections.
According to U.S. officials, North Korea admitted to having a secret uranium
enrichment program when U.S. officials visited Pyongyang in October 2002 (North Korea
since has denied making an admission). This confirmed U.S. intelligence information of
such a program that had built up since 1998. The Bush Administration reacted by calling for
concerned governments to pressure North Korea to abandon the secret uranium enrichment
program. In November 2002, it pushed a resolution through KEDO to suspend heavy oil
shipments to North Korea. (The Administration subsequently secured a suspension of
construction of the light-water reactors; the suspension was renewed in November 2004)
North Korea then initiated a number of aggressive moves to reactivate the plutonium-based
nuclear program shut down in 1994 under the Agreed Framework: re-starting the small, five-
megawatt nuclear reactor, announcing that construction would resume on two larger reactors,
announcing that it would re-start the plutonium reprocessing plant, and removing the 8,000
nuclear fuel rods from storage facilities. North Korea also expelled IAEA officials who had
been monitoring the freeze of the plutonium facilities under the Agreed Framework. In
January 2003, North Korea announced withdrawal from the Nuclear Non-Proliferation
Treaty. It threatened to end its moratorium on long-range missile testing in effect since
September 1999. North Korea asserted that it possessed nuclear weapons and that it had
completed reprocessing of the 8,000 fuel rods into weapons-grade plutonium. According to
nuclear experts and reportedly by U.S. intelligence agencies, this reprocessing would produce
enough plutonium for four to six atomic bombs. Moreover, North Korea threatened to export
nuclear materials. A Central Intelligence statement of August 18, 2003, estimated “that
North Korea has produced one or two simple fission-type nuclear weapons and has validated
the designs without conducting yield-producing nuclear tests.” Reuters News Agency and
the Washington Post reported on April 28, 2004, that U.S. intelligence agencies were
preparing a new National Intelligence Estimate that likely would conclude that North Korea
had approximately eight atomic bombs based on plutonium and that the secret uranium
enrichment program would be operational by 2007 and would produce enough weapons-
grade uranium for up to six atomic bombs annually.
The Administration’s policy has contained three elements: (1) a demand for unilateral
concessions, (2) the avoidance of direct negotiations with North Korea, and (3) the isolation
of North Korea internationally. In demanding unilateral concessions, the Administration
called on North Korea to commit to and take concrete measures to realize the “complete,
verifiable, irreversible dismantlement” of its nuclear programs, both the plutonium program
and the secret uranium enrichment program. This demand has become known as “CVID.”
The Administration asserts that North Korea must follow procedures similar to those that
Libya has adopted in giving up its weapons of mass destruction.
Administration officials have spoken often about the objective of “isolating” North
Korea. There are two components to this goal. One is to isolate North Korea from
diplomatic support from other governments over the nuclear issue and create a bloc of
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governments demanding that North Korea accept CVID. The second component is the
creation of a coalition of governments willing to impose economic sanctions on North Korea
if Pyongyang rejects CVID. Since May 2003, the United States has formed a Proliferation
Security Initiative (PSI) with more than ten other countries aimed at interdicting exports of
weapons of mass destruction and illegal drugs by proliferator countries. Measures are being
planned to interdict North Korean sea and air traffic. The Administration reportedly has
drafted plans for economic sanctions, including cutting off financial flows to North Korea
from Japan and other sources and interdicting North Korean shipments of missiles to the
Middle East and South Asia and reducing North Korea’s exports of drugs and counterfeit
currency. The Administration is pressuring several countries to cease purchases of North
Korean missiles. The aim of the PSI would be to constrict sharply North Korean foreign
exchange earnings, which are a major source of sustenance to the North Korean political elite
and the North Korean military.
In early 2003, the Administration proposed multilateral talks. After a U.S.-North
Korea-China meeting in April 2003, three plenary sessions of six-party talks (including
South Korea, Japan, and Russia) were held in August 2003, February 2004, and June 2004.
The Administration has viewed several roles for the six-party talks. The talks help the
Administration avoid bilateral negotiations with North Korea. Until the June 2004 meeting,
the Administration limited direct contact with North Korean delegates. The Administration
also views the six-party talks as giving it a vehicle to secure support from China, South
Korea, Japan, and Russia for the U.S. CVID demand. U.S. officials have spoken of creating
a five-versus-one situation in the six-party talks, thus isolating North Korea. This would lay
the groundwork for the participation of these countries in sanctions against North Korea if
North Korea rejected CVID — sanctions either through the U.N. Security Council and/or the
PSI. Since 2002, Administration officials have expressed a view that North Korea would
isolate itself through its provocative actions in reopening its plutonium nuclear program and
its threats to proliferate nuclear materials and test nuclear weapons and missiles.
The Administration has placed emphasis on China’s role in the talks, stating that China
should exert diplomatic pressure on North Korea to accept CVID. Some Administration
officials expressed the view that China could be persuaded to join the United States in
sanctions against North Korea even to the extent of creating an internal crisis within the
North Korean regime. The importance of China is pointed up by the mutual defense treaty
China has with North Korea and China’s role in supplying North Korea with an estimated
90% of its oil and 40% of its food.
In the summer of 2003, the North Korean leadership appeared worried at the prospect
of international isolation and heavier U.S. pressure. From that point, there emerged a
multifaceted North Korean diplomatic strategy backed by a concerted propaganda campaign
aimed at strengthening Pyongyang’s position in the six-party talks and weakening the U.S.
position. A lead component of North Korea’s strategy has been to threaten repeatedly that
it would abandon the six-party talks. North Korea apparently has employed this threat to
demand that China, the host of the talks, provide it with financial subsidies and increased
shipments of food and oil as “payment” for North Korean agreement to attend future sessions
of the talks. But with these threats, North Korea made a series of proposals: first, a formal
U.S.-North Korean non-aggression pact, later modified to a formal U.S. guarantee that the
United States would not attack North Korea; second, a “freeze” of North Korea’s plutonium
program; and third, retention by North Korea of a “peaceful” nuclear program. North Korean
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proposals called for extensive concessions by the United States and Japan, including removal
of North Korea from the U.S. list of terrorist-supporting states, supply of electricity, several
billion dollars in “compensation” from Japan, restoration of shipments of heavy oil and
construction of the two light-water nuclear reactors under the 1994 Agreed Framework, and
an end to U.S. economic sanctions and U.S. interference in North Korea’s economic relations
with other countries. While keeping its proposals vague regarding content and its own
obligations, North Korea has engaged in a concerted propaganda campaign, promoting its
proposals and accusing the Bush Administration of plotting an “Iraq-like” attack.
An element in North Korea’s counter-strategy has been a campaign to deny that it has
a uranium enrichment (HEU) program. From the summer of 2003, North Korean
propaganda organs have escalated denials of an HEU program and denials that North Korean
officials admitted an HEU program to U.S. officials in October 2002. North Korea also
moderated its threats of proliferation and testing.
North Korea gained a stronger position in the February 2004 plenary session of the six-
party talks and afterward. The Administration’s goal of creating a five-versus-one situation
remained distant. North Korea’s proposals for a nuclear “freeze” and retention of a
“peaceful” nuclear program occupied much of these meetings. U.S. negotiators claimed that
the other four participants supported CVID; but China and Russia expressed sympathy and/or
support for Pyongyang’s proposals of a U.S. non-aggression guarantee, nuclear freeze, and
North Korean retention of a “peaceful” nuclear program. China asserted that the goal of the
talks should be to eliminate North Korea’s “nuclear weapons” rather than its nuclear
programs. Russia and China voiced doubts that North Korea has an HEU program, and they
did not challenge North Korea’s denial strategy; in June 2004, a top Chinese official openly
challenged the U.S. claim. Moreover, North Korea had succeeded in extracting more fuel,
food, and financial subsidies (at least $50 million) from China in bargaining over North
Korea’s participation in the talks. China, Russia, and South Korea expressed opposition to
economic sanctions, and only Japan joined the PSI.
The Bush Administration modified its policy in certain areas to counter North Korean
strategy and the attitudes of China and Russia but with minimum success. President Bush
responded to Chinese urgings in October 2003 and offered to propose a multilateral security
guarantee to North Korea. The Administration attempted to use the reported “confession”
of A.Q. Khan, Pakistan’s nuclear czar, to rebuff North Korea’s denial campaign regarding
the HEU program; Khan reportedly admitted that he had transferred technology and
components of an HEU program to North Korea. However, Khan’s “confession” was based
on second-hand information; and it did not change the Russian and Chinese positions.
Pressure from the other participants in the six-party talks and the lack of progress
toward U.S. goals at the talks appear to be major factors behind the Bush Administration’s
decision to issue the comprehensive proposal of June 23, 2004. The U.S. proposal called for
a quick dismantlement of North Korea’s plutonium and uranium enrichment programs
following a three-month “preparatory period.” During the preparatory period, North Korea
would declare its nuclear facilities and materials, suspend their operation, allow effective
international inspections including a return of the IAEA, and negotiate the steps to be taken
in dismantlement. In return, South Korea and Japan would supply North Korea with heavy
oil. North Korea would receive a “provisional multilateral security assurance” against a U.S.
attack. The United States and North Korea would begin talks over U.S. economic sanctions
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and North Korea’s inclusion on the U.S. list of terrorist-supporting countries. The
participants in the talks also would begin a study of North Korea’s energy situation. After
North Korea completed dismantlement, it would receive a permanent security guarantee, and
permanent solutions to its energy problems would be undertaken.
North Korea’s decision, announced on July 24, 2004, to reject the U.S. proposal as a
“sham proposal” and its subsequent refusal to participate in scheduled six-party meetings in
August and September 2004, apparently was motivated at least in part by the objective of
“killing” the June 23 proposal as an active basis of future negotiations. Pyongyang seemed
to believe that if it succeeded, the United States would be in a weakened position with
limited options in 2005. The other six-party participants gave no endorsements or positive
statements of the June 23 proposal after the June 2004 six-party meeting; this appears to have
encouraged North Korea to initiate its “kill strategy.” The other governments refrained from
criticizing North Korea’s post-July 24 obstructionist tactics. China and Russia continued to
voice support for elements of North Korea’s “reward for freeze” proposal; and they
continued to express skepticism toward the U.S. claim of a secret North Korean HEU
program. South Korean officials joined in voicing skepticism. China reportedly continued
to offer “gifts” of oil, food, and money. The Bush Administration did not have a followup
strategy to promote the June 23 proposal, gain diplomatic support for it from the other six-
party governments, and create pressure on North Korea to accept it as a basis for
negotiations. By the time of the U.S.2004 elections, Chinese, South Korean, and Russian
officials stated publicly that the U.S. proposal was inadequate. China and South Korea
reportedly want the United States to contribute financially to the delivery of heavy oil to
North Korea in the first stage of a settlement. South Korean President Roh Moo-hyun’s
speeches in November 2004 criticized U.S. policies and praised North Korea’s “reward for
freeze” proposal. In mid-2005, South Korean officials called for a more detailed proposal.
North Korea formalized this strategy with its statements of February 10 and March 31,
2005, claiming that it has nuclear weapons, suspending participation in the six-party talks,
and demanding a new agenda for the talks emphasizing reductions in U.S. forces and military
activities in and around the Korean peninsula. North Korea appears to have felt confident
enough of its diplomatic position that it expanded its diplomatic objectives to the creation
of a protracted, long-term diplomatic stalemate on the nuclear issue.
North Korea’s Missile Program.2 North Korea has maintained a moratorium on
flight testing of long-range missiles since September 1999. The last such missile test, on
August 31, 1998, flew over Japanese territory. Japan also believes it is threatened by
approximately 100 intermediate-range Nodong missiles, which North Korea has deployed.
Reports since 2000 cite U.S. intelligence findings that North Korea is developing a Taepo
Dong-2 intercontinental missile that would be capable of striking Alaska, Hawaii, and the
U.S. west coast with nuclear weapons. U.S. officials reportedly claimed in September 2003
that North Korea had developed a more accurate, longer-range intermediate ballistic missile
that could reach Okinawa and Guam (sites of major U.S. military bases) and that there was
evidence that North Korea had produced the Taepo Dong-2. U.S. officials reportedly told
2 Kim Kyoung-soo (ed.). North Korea’s Weapons of Mass Destruction. Elizabeth, New Jersey, and
Seoul: Hollym Corporation, 2004: p.121-148.
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Japanese counterparts in July 2003 that North Korea was close to developing nuclear
warheads for its missiles.
In the 1990s, North Korea exported short-range Scud missiles and Scud missile
technology to countries in the Middle East. It exported Nodong missiles and Nodong
technology to Iran, Pakistan, and Libya. In 1998, Iran and Pakistan successfully tested
medium-range missiles modeled on the Nodong. Japan’s Sankei Shimbun newspaper
reported on August 6, 2003, that North Korea and Iran were negotiating a deal for the export
of the long-range Taepo Dong-2 missile to Iran and the joint development of nuclear
warheads. Pakistani and Iranian tests of North Korean-designed missiles have provided
“surrogate testing” that dilutes the limitations of the September 1999 moratorium.
The test launch of the Taepo Dong-1 spurred the Clinton Administration to intensify
diplomacy on North Korea’s missile program. The Administration’s 1999 Perry initiative
set the goal of “verifiable cessation of testing, production and deployment of missiles ... and
the complete cessation of export sales of such missiles and the equipment and technology
associated with them.” The Perry initiative offered to normalize U.S.-North Korean
relations, end to U.S. economic sanctions, and provide other economic benefits in return for
North Korean concessions on the missile and nuclear issues. This produced the September
1999 North Korean missile test moratorium. The Clinton Administration responded in June
2000 by lifting of a significant number of U.S. economic sanctions against North Korea.
In October 2000, the Clinton Administration reportedly proposed a comprehensive deal
covering all aspects of the issue. North Korea offered to prohibit exports of medium- and
long-range missiles and related technologies in exchange for “in-kind assistance.” (North
Korea previously had demanded $1 billion annually.) It also offered to ban permanently
missile tests and production above a certain range in exchange for “in-kind assistance” and
assistance in launching commercial satellites. Pyongyang offered to cease the deployment
of Nodong and Taepo Dong missiles. It proposed that President Clinton visit North Korea
to conclude an agreement. The negotiations reportedly stalled over four issues: North
Korea’s refusal to include short-range Scud missiles in a missile settlement; North Korea’s
non-response to the U.S. position that it would have to agree to dismantle the already
deployed Nodong missiles; the details of U.S. verification of a missile agreement; and the
nature and size of a U.S. financial compensation package.
The Bush Administration repeatedly described North Korea as a dangerous proliferator
of missiles and demanded that North Korea cease exporting missiles and missile technology.
However, the Administration has offered no specific negotiating proposal on missiles. The
Administration emphasized the necessity of installing an anti-missile defense system.
Weapons of Mass Destruction.3 A Pentagon report on the North Korean military,
released in September 2000, stated that North Korea had developed up to 5,000 metric tons
of chemical munitions and had the capability to produce biological weapons, including
anthrax, smallpox, the bubonic plague, and cholera. The Bush Administration has expressed
concern that North Korea might sell nuclear, chemical, or biological weapons to a terrorist
group such as Al Qaeda or that Al Qaeda might acquire these weapons from a Middle East
3 Ibid., p.79-120.
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country that had purchased them from North Korea. In November 2001, President Bush
included North Korea’s WMDs as part of the “war against terrorism.” The Bush
Administration has not accused North Korea directly of providing terrorist groups with
WMDs. There are reports from the early 1990s that North Korea assisted Syria and Iran in
developing chemical and biological weapons capabilities.
North Korea’s Inclusion on the U.S. Terrorism List. In February 2000, North
Korea began to demand that the United States remove it from the U.S. list of terrorist
countries. North Korea’s proposals at the six-party nuclear talks also call for the United
States to remove Pyongyang from the terrorist list. North Korea’s chief motive appears to
be to open the way for the nation to receive financial aid from the World Bank and the
International Monetary Fund (IMF). P.L. 95-118, the International Financial Institutions Act,
requires the United States to oppose any proposals in the IMF and World Bank to extend
loans or other financial assistance to countries on the terrorism list. The South Korean Kim
Dae-jung Administration also urged the United States to remove North Korean from the
terrorism list so that North Korea could receive international financial assistance.
Japan has urged the United States to keep North Korea on the terrorism list until North
Korea resolves Japan’s concerns over North Korea’s kidnapping of Japanese citizens. The
Clinton Administration gave Japan’s concerns increased priority in U.S. diplomacy in 2000
(See CRS Report RL30613, North Korea: Terrorism List Removal?, by Larry Niksch and
Raphael Perl). At the Beijing meetings, the Bush Administration called on North Korea to
resolve the issue with Japan. In 2004, the Administration made the kidnapping of Japanese
citizens an official reason for North Korea’s inclusion on the terrorist list. Kim Jong-il’s
admission, during the Kim-Koizumi summit of September 2002, that North Korea had
kidnapped Japanese citizens did not resolve the issue. His claim that eight of the 13 admitted
kidnapped victims are dead raised new issues for the Japanese government, including
information about the deaths of the kidnapped and the possibility that more Japanese were
kidnapped. The five living kidnapped Japanese returned to Japan in October 2002. In return,
Japan promised North Korea 250,000 tons of food and $10 million in medical supplies.
However, in late 2004, Japan announced that the remains of two alleged kidnapped Japanese
that North Korea had turned over to Japan were false remains. This prompted demands in
Japan for sanctions against North Korea. The Bush Administration reportedly advised Japan
to refrain from sanctions because of a potential negative impact on the six-party talks.
Food Aid. North Korea’s order to the U.N. World Food Program (WFP) to suspend
food aid after December 2005 ended ten years of WFP food aid to North Korea. From 1995
through 2004, the United States supplied North Korea with over 1.9 million metric tons of
food aid through the United Nations World Food Program (WFP). South Korea has
extended increasing amounts of bilateral food aid to North Korea, including one million tons
of rice in 2004. Agriculture production in North Korea began to decline in the mid-1980s.
Severe food shortages appeared in 1990-1991. In September 1995, North Korea appealed
for international food assistance. The Clinton Administration used food aid to secure North
Korean agreement to certain types of negotiations and North Korean agreement to allow a
U.S. inspection of the suspected nuclear site at Kumchangri. The Bush Administration
reduced food aid, citing North Korean refusal to allow adequate access and monitoring. It
pledged 50,000 tons for 2005 but suspended the delivery of the remaining 25,000 tons when
North Korea ordered the WFP to cease operations. The WFP acknowledged that North
Korea places restrictions on its monitors’ access to the food distribution system, but it
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professed that most of its food aid reached needy people. Several private aid groups,
however, withdrew from North Korea because of such restrictions and suspicions that the
North Korean regime was diverting food aid to the military or the communist elite living
mainly in the capital of Pyongyang. The regime reportedly gives priority to these two groups
in its overall food distribution policy. Some experts also believe that North Korean officials
divert some food aid for sale on the extensive black market. The regime has spent none of
several billion dollars in foreign exchange earnings since 1998 to import food or medicines.
The regime refuses to adopt agricultural reforms similar to those of fellow communist
countries, China and Vietnam, including dismantling of Stalinist collective farms. It is
estimated that one to three million North Koreans died of malnutrition between 1995 and
2003.4
North Korean Refugees in China and Human Rights. This issue confronted
governments after March 2002 when North Korean refugees, aided by South Korean and
European NGOs, sought asylum in foreign diplomatic missions in China and the Chinese
government sought to prevent access to the missions and forcibly removed refugees from the
Japanese and South Korean embassies. The refugee exodus from North Korea into China’s
Manchuria region began in the mid-1990s as the result of the dire food situation in North
Korea’s provinces in the far north and northeast along the Chinese border. Estimates of the
number of refugees cover a huge range, from 10,000 to 300,000, including a State
Department estimate of 30,000-50,000 in June 2005.
Generally, China tacitly accepted the refugees so long as their presence was not highly
visible. China also allowed foreign private NGOs, including South Korean NGOs, to
provide aid to the refugees, again so long as their activities were not highly visible. China
barred any official international aid presence, including any role for the United Nations High
Commission for Refugees. It instituted periodic crackdowns that included police sweeps of
refugee populated areas, rounding up of refugees, and repatriation to North Korea. Since
early 2002, China allowed refugees who had gained asylum in foreign diplomatic missions
to emigrate to South Korea. However, China’s crackdown on the border reportedly included
the torture of captured refugees to gain information on the NGOs that assisted them.
China tries to prevent any scenario that would lead to a collapse of the Pyongyang
regime, its long-standing ally. Chinese officials fear that too much visibility of the refugees
and especially any U.N. presence could spark an escalation of the refugee outflow and lead
to a North Korean regime crisis and possible collapse. China’s crackdowns are sometimes
a reaction to increased visibility of the refugee issue. China’s interests in buttressing North
Korea also have made China susceptible to North Korean pressure to crack down on the
refugees and return them. Reports in 2003 and 2004 described stepped-up security on both
sides of the China-North Korea border to stop the movement of refugees and Chinese
roundups of refugees and repatriation to North Korea. South Korea, which had turned
refugees away from its diplomatic missions, changed its policy in response to the new
situation. It accepted refugees seeking entrance into its missions and allowed them entrance
4 Natsios, Andrew S. The Great North Korean Famine. Washington, U.S. Institute of Peace Press,
2001. Flake, L. Gordon and Snyder, Scott. Paved with Good Intentions: The NGO Experience in
North Korea. Westport, Connecticut: Praeger, 2003.
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into South Korea, and it negotiated with China over how to deal with these refugees.5
However, South Korea, too, opposes encouragement of a refugee exodus from North Korea.
The Bush Administration gave the refugee issue low priority. The Administration
requested that China allow U.N. assistance to the refugees but asserted that South Korea
should have the lead diplomatically with China. The issue has been aired in congressional
hearings. In June 2002, the House of Representatives passed H.Con.Res. 213, which calls
on China to halt forced returns of refugees to North Korea and give the U.N. High
Commission on Refugees access to North Korean refugees.
The refugee issue had led to increased outside attention to human rights conditions in
North Korea. Reports assert that refugees forcibly returned from China have been
imprisoned and tortured in an extensive apparatus of North Korean concentration camps
modeled after the “gulag” labor camp system in the Soviet Union under Stalin. Reports by
Amnesty International, the U.S. State Department, and, most recently, the U.S. Committee
for Human Rights in North Korea have described this system as holding up to 250,000
people. In 2003 and 2004, the United States secured resolutions from the U.N. Human
Rights Commission expressing concern over human rights violations in North Korea,
including concentration camps and forced labor. South Korea abstained from the
Commission’s votes in the interest of pursuing its “sunshine” policy with North Korea.6
South Korean officials also criticized passage by Congress in October 2004 of H.R.
4011, the North Korean Human Rights Act of 2004. The act (P.L. 108-333) grants asylum
and legal immigration status to North Korean refugees and requires the U.S. executive
branch adopt a number of measures aimed at furthering human rights in North Korea,
including financial support of nongovernmental human rights groups, increased radio
broadcasts into North Korea, sending of radios into North Korea, and a demand for more
effective monitoring of food aid.
South Korea’s Sunshine Policy and the Hyundai Payments to North Korea.
South Korean President Kim Dae-jung took office in 1998, proclaiming a “sunshine policy”
of reconciliation with North Korea. He achieved a breakthrough in meeting with North
Korean leader Kim Jong-il in Pyongyang, June 13-14, 2000. Seoul and Pyongyang then
negotiated agreements on the restoration of a railway and road across the demilitarized zone
(DMZ), investment guarantees and tax measures to stimulate South Korean private
investments in North Korea, provision of South Korean food aid to North Korea, and flood
control projects for the Imjim River. President Kim called on the United States to support
his sunshine policy by normalizing diplomatic relations with North Korea, negotiating a
missile agreement with Pyongyang, and removing North Korea from the U.S. terrorist list.
Negotiations in August 2002 produced a renewal of family reunions and agreement to
implement economic agreements of 2000. The roads in the eastern and western sectors of
the DMZ opened in 2003, and work on the rail lines is continuing. Seoul and Pyongyang
reached agreement in November 2002 on South Korean aid to construct a special economic
zone at Kaesong inside North Korea to attract South Korean private investment. North
5 Kirk, Jeremy. “N. Korean Defections Strain Ties,” Washington Times, February 11, 2005. p.A17.
6 Hawk, David. The Hidden Gulag: Exposing North Korea’s Prison Camps. Washington, U.S.
Committee for Human Rights in North Korea, 2004.
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Korea issued a law for foreign investment at Kaesong. The first South Korean companies
began operations at Kaesong in late 2004. In June 2004, North and South Korea agreed to
set up military hotlines and cease propaganda broadcasts across the DMZ. Current South
Korean president Roh Moo-hyun has pledged to continue aid, trade, and programs with
North Korea under a “peace and prosperity” policy, despite North Korea’s nuclear policies.
Roh consistently has opposed sanctions or other coercive measures against North Korea.
The most controversial component of the sunshine policy has been the cash payments
the Hyundai Group has made to North Korea, supported by the R.O.K. government. In
October 1998, Hyundai Asan, one of the member companies of the Hyundai Group, entered
into an agreement with North Korea to operate a tourism enterprise at Mount Kumgang in
North Korea. The agreement stipulated that Hyundai Asan would make cash payments to
the North Korean government of $942 million over six years plus $300 from each tourist.
From 1999 into 2003, Hyundai made public cash payments of about $600 million to North
Korea for the Mt. Kumgang project and two other projects.7 According to informed sources
available to CRS in 2001, Hyundai companies made additional secret payments to North
Korea. Hyundai officials and the Kim Dae-jung administration denied for nearly two years
that secret payments were made. In early 2003, however, they admitted to secret payments
of $500 million and that the money was transferred shortly before the June 2000 North-South
summit.
Investigations by a special prosecutor and South Korean newspapers revealed that North
Korean leader Kim Jong-il demanded $1 billion from Hyundai Asan in return for meeting
with Kim Dae-jung.8 Chung Mong-hun, the CEO of Hyundai Asan and one of the sons of
Hyundai’s founder, Chung Ju-yung, initially turned down the North Korean demand; but
officials of the Kim Dae-jung administration urged him to make payments. Hyundai Asan
and North Korean officials agreed on $500 million on April 8, 2000. The special prosecutor’s
findings were that several Hyundai member companies of the Hyundai Group (also run by
Chung family members) were involved in making the secret payments a few days before the
summit: Hyundai Merchant Marine ($200 million); Hyundai Engineering and Construction
($150 million); Hyundai Electronics ($100 million); and Hyundai Asan ($50 million in
luxury goods). The special prosecutor also found that officials of the government’s Korean
Exchange Bank and the National Intelligence Service helped the Hyundai companies transfer
the money to North Korean bank accounts in Macao, Singapore, and Austria. Senior
officials of the Kim Dae-jung administration facilitated a loan of 400 billion won (about
$359 million) from the Korea Development Bank to Hyundai Merchant Marine. The
company immediately transferred 223.5 billion won (about $190 million) of this to the
R.O.K. National Intelligence Service, which transferred the money to the North Korean bank
account in Macao.9 Thus, a sizeable share of the secret payments came from the South
7 Choe Sang-hun. N. Korea proves tough sell as tour destination. Washington Times, February 20,
2004. p. A17. Cho Hyung-rae. “Total Official NK Aid Hits US$1.3 Billion,” Chosun Ilbo (internet
version), January 31, 2003.
8 Choe Chae-hyok. “Cash-for-Summit Deal Coming to Light,” Chosun Ilbo (internet version), June
11, 2003. Yonhap News Agency report, February 7, 2003.
9 Kang Chu-an. “North Cash Called “Payoff” by Counsel,” Chungang Ilbo (internet version), June
26, 2003. Yim Chang-hyok and Kang Il-sik. “Counsel Says 2d Hyundai Firm Sent Cash North,”
(continued...)
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Korean government. President Roh Moo-hyun cut off the special prosecutor’s investigation
in June 2003; the opposition Grand National Party has charged that there were additional
secret payments totaling several hundred million dollars. There were six indictments and
convictions of R.O.K. and Hyundai officials.
After the conclusion of the Mt. Kumgang agreement, U.S. military officials were
suspicious that North Korea was using the Hyundai money for military purposes. U.S.
military officials in Korea reportedly raised the issue with Hyundai officials in November
1999. The Korea Herald, on February 5, 2001, quoted a spokesman for the U.S. Military
Command in Korea that “I know that military experts at home and abroad are concerned
about Pyongyang’s possible diversion of the [Hyundai] cash for military purposes.” Most
serious is strong circumstantial evidence that the Hyundai payments helped North Korea to
accelerate the financing of its secret highly enriched uranium (HEU) nuclear program. The
first element of this evidence is the corresponding time frame of 1999-2001 when the
Hyundai cash was flowing to North Korea and North Korea apparently was accelerating its
foreign exchange expenditures overseas to procure components and materials for the HEU
program. According to CIA estimates and statements of former Clinton Administration
officials, quoted in the Washington Post of February 1, 2003,10 North Korea began to procure
uranium enrichment technology in 1999 and accelerated procurements and attempted
procurements into 2000 and 2001. The Asian Wall Street Journal of October 29, 2002,
reported that North Korea had paid $75 million to Pakistan’s Khan laboratory, which
specialized in Pakistan’s HEU nuclear weapons program.11 Jim Hoagland reported in the
Washington Post of November 10, 2002, that North Korea had acquired 2,000-3,000
centrifuges, the basic infrastructure component for producing HEU; he also cited former
Clinton Administration officials that North Korea began to accelerate the program in 1999.12
A second element of evidence is that estimates of North Korea’s exports in 1999 and
2000 indicate that Hyundai cash payments of over $1 billion made up approximately 25%
of North Korea’s foreign exchange earnings. North Korea’s economic collapse of the 1990s
reached a nadir in those years with commercial exports falling to around $600 million
annually. North Korea also suffered from a commercial trade deficit of about $1 billion
annually. Exports of missiles and illegal drugs were estimated at close to $1 billion in 2001
by the U.S. military command in South Korea, but other estimates of earnings from illegal
drugs is in the range of $200 million.13
9 (...continued)
Chungang Ilbo (internet version), June 5, 2003.
10 Pincus, Walter. “N. Korea’s Nuclear Plans Were No Secret,” Washington Post, February 1, 2003.
p.A1.
11 Gittings, Danny. “Battling the Bribers,” Asian Wall Street Journal, October 29, 2002. p. A11.
12 Hoagland, Jim. “Nuclear Deceit,” Washington Post, November 10, 2002. p.B7.
13 CRS Report RL32167, Drug Trafficking and North Korea: Issues for U.S. Policy, by Raphael F.
Perl. Ash, Robert F. Economy of the Democratic People’s Republic of Korea. The Far East and
Australasia 2004. London and New York: Europa Publications, 2004. p.497. Yu Yong-won. “US
Forces Korea Discloses for the First Time That North Korea Exports Missiles Worth $600 Million
per Year.” Chosun Ilbo (internet version), May 13, 2003.
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The third element of evidence is the role of Bureau 39 of the North Korean Communist
Party as both the recipient of the Hyundai money and the procurer of overseas components
and technology for North Korea’s nuclear programs. Bureau 39 reportedly is located in Kim
Jong-il’s headquarters and is directed by him. Bureau 39’s functions reportedly include
controlling and enlarging the inflow of foreign exchange to Kim Jong-il through legal
exports and illegal exports such as drug smuggling. It also directs North Korea’s foreign
exchange expenditures with two priorities: (1) procurement of luxury products from abroad
that Kim Jong-il distributes to a broad swath of North Korean military, party, and
government officials to secure their loyalty — estimated at $100 million annually by U.S.
military officials in Seoul, according to a Reuters report of March 4, 2003; and (2)
procurement overseas of components and materials for North Korea’s weapons of mass
destruction (WMDs), including nuclear programs. Bureau 39 is known to operate banks in
Macau, Singapore, and Vienna and a number of front companies overseas to purchase WMD
components.14 Marcos Noland of the Institute of International Economics wrote in 2000 that
Hyundai official payments for the Mount Kumgang tourist project apparently were “going
into the Macau bank account of Bureau 39.”15 The South Korean special prosecutor and
South Korean newspapers learned that the secret Hyundai payments of 2000 were transferred
to bank accounts in Macao, Singapore, and Vienna controlled by Bureau 39. South Korea’s
National Intelligence Service reportedly intercepted a message of June 12, 2000, from the
head of North Korea’s Jokwang Trading Company in Macau (a known front of Bureau 39)
to Communist Party officials in Pyongyang that the Hyundai secret payments had been
received.16
Anti-Americanism and Plans to Change the U.S. Military Presence17
Beginning in early 2003, the Bush Administration made a series of decisions that will
alter the U.S. presence in South Korea: withdrawal of the Second Infantry Division of about
14 There are a number of reports on Bureau 39, which contain similar information on its functions,
including its role in overseas procurements for WMDs. See Solomon, Jay and Choi Hae-won.
“Money Trail: in North Korea, Secret Cash Hoard Props up Regime — defectors, Intelligence
Sources Say Division 39 Supplies Billions to Kim Jong il,” Wall Street Journal, July 14, 2003. p.A1.
U Chong-chang. “Kim Jong-il’s Slush Funds,” Wolgan Chosun (Seoul), November 1, 2000. p.222-
236. Suetsugu Tetsuya. “Risky business Leading N. Korea to Ruin.” Yomiuri Shimbun (Tokyo,
internet version), August 22, 2003. Solomon, J., Hae Won Choi, B. Baas, and C. Hardt. “The
Dictator’s Long Shadow: Secret Network of Funds and Firms Supports North Korean Regime,”
Duesseldorf Handelsblatt (internet version), August 6, 2003. Leidig, Michael. “Austria Accuses
North Korean Bank of Spying,” London Daily Telegraph (internet version), July 23, 2003.
15 Noland, Marcus. “Economic Integration Between North and South Korea,” Korea’s Economy
2000. Washington: Korean Economic Institute, 2001. p.69.
16 Kang, Chu-an. “North Cash Called “Payoff” by Counsel,” Chungang Ilbo (internet version), June
26, 2003. Kim In-ku. “Money Sent Through Spy Office,” Chosun Ilbo (internet version), February
18, 2003. Special Reporting Team. “Wiretappers Intercepted Call Reporting Cash Transfer,”
Chungang Ilbo (internet version), February 17, 2003.
17 Perry, Charles. Alliance Diversification and the Future of the U.S.-Korean Security Relationship.
Herndon, Virginia: Brassey’s, Inc., 2004. Mitchell, Derek (ed.). Strategy and Sentiment: South
Korean Views of the United States and the U.S.-ROK Alliance. Washington, Center for Strategic
and International Studies, 2004.
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15,000 troops from its position just below the DMZ to “hub bases” about 75 miles south; and
relocation of the U.S. Yongsan base, housing about 8,000 U.S. military personnel in the
center of Seoul, away from the city. (A 1991 agreement to relocate Yongsan never was
implemented.) In May-June 2004, the Pentagon disclosed a plan to withdraw 12,500 U.S.
troops from South Korea by the end of 2005, including the deployment to Iraq by August
2004 of one of the two combat brigades of the Second Division. Such a withdrawal would
reduce U.S. troop strength in South Korea from 37,000 to about 24,000. The 3,600-man
brigade left for Iraq in August 2004; but under South Korean pressure, the Pentagon agreed
in October 2004 to withdraw the remainder of the 12,500 troops in phases stretching to
September 2008 and to keep close to 1,000 U.S. military personnel in Seoul after the closing
of the Yongsan base. Pentagon officials spoke of U.S. military compensation measures,
including the augmentation of air and naval forces in the Western Pacific; they later deployed
F-117 stealth fighters to South Korea. The Pentagon and the U.S. Pacific Command
reportedly are considering changes in the U.S. military command structure in Korea, which
presently includes the United Nations Command, the U.S. Forces Korea (USFK) Command,
and the U.S.-South Korean Combined Forces Command. The Pentagon is investing $11
billion to upgrade U.S. forces in Korea. South Korea has agreed to assume the estimated $3-
4 billion cost of relocating the Yongsan garrison by 2008.
There are several rationales for the Pentagon’s decisions. One is a doctrine of “strategic
flexibility” under which the United States could use U.S. forces in South Korea in
contingencies outside the Korean peninsula. Relocation of the Second Division will
facilitate its restructuring along the lines of the Pentagon’s plans to restructure the Army’s
traditional combat divisions into smaller, mobile combat brigades. The withdrawal of troops
will help the U.S. Army meet the manpower burdens in Iraq and in other fronts in the “war
against terrorism.” U.S. officials also have voiced the hope that the troop changes and
reduction would mitigate the rising anti-American sentiment among South Koreans.
Anti-American sentiment is based on a younger generation of South Koreans who came
of age under South Korean authoritarian regimes. Members of this “386” generation now
occupy positions of power and criticize the United States for the perceived U.S. support of
these regimes. After 1998, South Korean public opinion became critical of the U.S. military
presence because of incidents involving South Korean civilians and the U.S. military,
declining South Korean concerns over a North Korean military threat, and a view that USFK
had exaggerated the capabilities of North Korean conventional forces. Later, criticisms arose
of the Bush Administration’s policies toward North Korea, reflecting South Korean public
support for Kim Dae-jung’s sunshine policy. In 2002, massive South Korean protests
erupted when a U.S. military vehicle killed two Korean schoolgirls and the U.S. military
personnel driving the vehicle were acquitted in a U.S. court martial. Roh Moo-hyun was
elected in December 2002 after criticizing the United States during his campaign. Anti-U.S.
sentiment is strong among younger South Koreans under 40, according to polls. Polls since
January 2004 have found that more South Koreans view the United States as the biggest
threat to South Korea as compared to those who view North Korea as the principal threat.
A network of non-governmental civic groups has taken up anti-American themes, including
some accusations similar to those advanced by North Korean propaganda. The U.S. invasion
of Iraq also drew criticism from the South Korean public. President Roh faced public
criticism for his decision to send a brigade-sized (about 3,600 troops) South Korean combat
unit to Iraq. Roh has asserted that his ability to influence U.S. policy toward North Korea
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is a primary reason for his support of the U.S. war against Iraq. In October 2003, the R.O.K.
government announced that it would commit $200 million in reconstruction aid to Iraq.
President Roh raised new issues in early 2005 that potentially could affect the alliance.
He asserted that U.S. forces in South Korea could not be used in contingencies in Northeast
Asia without South Korean consent. He also declared that future South Korean security
policy would seek for South Korea the role of a “balancer” among the major powers in
Northeast Asia. Most analysts viewed both pronouncements as influenced by South Korea’s
growing ties with China and a desire to keep South Korea out of future disputes between the
United States and China or Japan and China.
The total cost of stationing U.S. troops in South Korea is nearly $3 billion annually.
The South Korean direct financial contribution for 2005 and 2006 is $681 million.
FOR ADDITIONAL READING
CRS Report RL31696. North Korea: Economic Sanctions, by Dianne E. Rennack.
CRS Issue Brief IB91141. North Korea’s Nuclear Weapons Program, by Larry A. Niksch.
CRS Report RS21473. North Korean Ballistic Missile Threat to the United States, by
Andrew Feickert.
CRS Report RL31785. Foreign Assistance to North Korea, by Mark E. Manyin.
CRS Report RL32167. Drug Trafficking and North Korea: Issues for U.S. Policy, by
Raphael F. Perl.
CRS Report RL31555. China and Proliferation of Weapons of Mass Destruction and
Missiles: Policy Issues, by Shirley A. Kan.
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