By: Our Correspondent

backfire-insideWhen North Korea fired seven ballistic missiles on July 5, the nation most acutely embarrassed was neither Japan nor the United States, the two countries they were intended to intimidate. Rather it was South Korea, North Korea’s closest neighbor and main source of economic sustenance for the past 10 years.

Beyond that, the North’s provocation appears to have backfired across a widening circle that is deepening Pyongyang’s isolation, severely damaging its relations with both China, its reluctant patron, and Japan, upon which it also depends for economic support. Condemnation has flowed from the UN Security Council to the ASEAN Regional Forum on July 27-28.
But more immediately to the detriment of Kim Jong-il’s interests, the missile tests have severely undermined Seoul’s “sunshine” policy of engagement, prompting South Korea’s President Roh Moo Hyun to lament, “We really have hard time figuring out what the North wants to achieve by this.”

Roh doesn’t have the luxury of wasting much time reflecting on that question, afflicted as he is with a mounting domestic chorus of criticisms of his engagement policy from all sections of political spectrum. His governing Uri Party was soundly defeated in the July 26 parliamentary by-elections, losing all four contested seats and returning an opposition candidate who unsuccessfully engineered an impeachment motion against him two years ago. It was the second massive electoral defeat in the last two months: Roh’s party lost all but one city in the May 31 gubernatorial elections. In both of these votes, his controversial policy stand advocating more economic aid to the North was a chief campaign issue.

As Seoul’s efforts to broker a deal have faltered, a broad coalition of center-right forces has emerged to press for reassessment of the whole North Korean policy. It’s a development the governing Uri Party can ill afford to ignore as it prepares to contest next year’s presidential election campaign. Its defeat will mean the rise of a tough new policy on Pyongyang. The conservative Grand National Party vows to submit a radically different course of linking economic aid with internal relaxation and economic reform in exchange for more aid. The party officials in Pyongyang have been so incensed over this prospect that they have openly warned that the rise of a conservative government in Seoul will mean return to old confrontation.
The North certainly appears concerned. Its ministerial delegation visiting Pusan shortly after the missile firings was seen filming the anti-missile street protest taking place outside its hotel. But it was evident they have a long way to go in dealing with the new reality of political freedom in the South. To the utter astonishment of his South Korean counterpart, chief North Korean delegate Kwon Ho Ung declared the South should be grateful to Kim Jong Il for developing missiles to protect the South from US imperialists.

To much of the South Korean media, it was ultimate proof of the Roh government’s naiveté and underestimation of the North’s threat. Seoul immediately responded by saying the North will get neither promised rice (half a million tons) or fertilizer (200,000 tons) unless it returns to the six-party talks and dismantles its nuclear weapons program.

How soon Kim does so will depend on a variety of factors, including the possibility of a new food shortage and how he juggles his powerful military establishment. Analysts in Seoul blame Kim’s songun or Military First doctrine for his recent intransigence. According to this theory, the North’s party leaders – if they ever appeared capable of making independent decisions – are in retreat over their failure to recover Kim’s US$24 million of accounts frozen by Banco Delta Asia in Macau. Unless the foreign ministry comrades restore this account, they won’t be able to persuade the generals to return to the Beijing talks. The money, analysts here believe, was Kim’s private treasury for bribing the generals.

kimjongil_altAgainst these setbacks, Kim appears to be enjoying his high-wire act. Is he creating this tension to consolidate his grip on power for a second father-to-son succession? Kim turned 64 in April, having taken over from his father more than 20 years ago. Or he may be feeling the need to tighten his control after a series of economic relaxations brought on price reform.
Whatever the imperatives, the missile launches are being followed by other hardening steps — North Korean officials are demanding payment in euros, not in US dollars, for tourism fees the South pays at Kumgang Mountain resort. Tourism payments amounted to US$13.5 million in 2005 and are expected to reach US$12 million this year. This is on top of about US$330 million already provided for exclusive contract deals and construction of hotels and other facilities.
While changing the currency may not be much of a problem, the North has abruptly cancelled the meeting of families divided since the end of the Korean War in 1953.This is a heart-breaking concern that partly justifies the cost of engagement policy. The North took this step in retaliation for suspension of the rice aid.

Similarly, politics also bedevils the Kaesong Industrial Zone project just north of the border. Seoul will pay about US$6 million this year, double last year’s total, in wages to 7,000 North Korean workers at Seoul-invested companies operating there. The companies want to pay workers directly, not the government agency as required, and are seeking a drastic reduction of security checks by North Korean troops guarding the area.

Direct payment to workers is regarded as especially important because Japan and the US – their two major export markets – have taken issue with human rights conditions in the North, expressing concern that cash payments may also be misused by the regime and diverted to the missile and nuclear weapons programs.

In continuing free trade negotiations, Japan and the US have refused to consider goods manufactured at Kaesong as being of South Korean origin, potentially raising a monumental problem. This became all the more critical after the July 15 UN Security Council resolution banning “transfer of finance” that could be “related” to trade in material or technology for production of weapons of mass destruction.

“We’ve no way of knowing where the money goes,” Unification Minister Lee Jong Seok recently acknowledged. That’s a point of attack by the Grand National Party in its current campaign to toughen Seoul’s posture to the North.

While Seoul needs to fall in line with the UN’s partial sanctions, Beijing and Tokyo are closing their gap on how to deal with the missile provocation. China, in a steady reversal of its tolerance, has not only endorsed this resolution, but also agreed to have the issue of Japanese abductees discussed at the coming rounds of the six-party talks.

In another major surprise, the Bank of China has frozen North Korean accounts at its Macau branch on suspicion of money-laundering by Pyongyang. (There are unconfirmed reports that Beijing was angered by evidence that the North was printing counterfeit renminbi.) Whether related or otherwise, Beijing has also allowed, for the first time, three North Korean asylum seekers inside the US consulate in Shenyang to proceed directly to the US on immigrant visas. All this points to a substantial change from China’s earlier claim that hungry North Koreans crossing the border are “economic migrants,” not political refugees. The trio was allowed to go without detouring to a third country to save the North’s face.

Despite the substantial economic aid China provides the North, politically it is in effect saying that the North should be more careful about ignoring China’s position. “China is doing what it can within bounds to rein in the North,” says a diplomatic official.

But nothing can match Japan’s potential to shake Kim’s financial position, according to many analysts. On top of the six-month ban imposed on North Korean vessels calling on Japanese ports, the Koizumi government is preparing further sanctions, including freezing of North Korea-related assets owned by pro-Pyongyang Koreans; their regular cash transfers to the North now appear threatened by sanctions.

Japan’s tight control on exports of electronic goods in particular is expected to deliver a considerable blow to the North’s missile program, according to security analysts, as Japan has been a main source of parts and guidance system for the North Korean weapons.
Already, the ban on regular ferry connections has forced chosen-soren people to fly on special chartered flights, adding expense to people running small businesses. Worse still, Japanese immigration officials can use their power to deny return entry to those visiting the North, forcing many to reconsider.

Some of these steps are still in the stage of speculation, but indications are emerging that Kim is feeling the impact of Tokyo’s hardening response. He has issued an invitation for a Liberal Democratic Party power-broker to visit Pyongyang for discussion of bilateral issues. And Pyongyang officials are hinting at continuing their lucrative deals with Seoul, tough statements notwithstanding.

Given the North’s unpredictable behavior, it is quite possible that it could abruptly change its position and return to the six-party talks as it searches for a way out of its self-imposed predicament. It’s becoming increasingly evident that the US will not back down and lift its financial sanctions as a price for bringing the North back to the conference table. Whether or not the North returns to the Beijing talks, the missile crisis has set in motion the need for the South to reassess its engagement policy.