U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

76–190PDF 2001

NORTHEAST ASIA AFTER 9/11:

REGIONAL TRENDS AND U.S. INTERESTS

HEARING

BEFORE THE

SUBCOMMITTEE ON EAST ASIA

AND THE PACIFIC

OF THE

COMMITTEE ON

INTERNATIONAL RELATIONS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

NOVEMBER 15, 2001

Serial No. 107–52

Printed for the use of the Committee on International Relations

(

Available via the World Wide Web: http://www.house.gov/international—relations

(II)

COMMITTEE ON INTERNATIONAL RELATIONS

HENRY J. HYDE, Illinois, Chairman

BENJAMIN A. GILMAN, New York

JAMES A. LEACH, Iowa

DOUG BEREUTER, Nebraska

CHRISTOPHER H. SMITH, New Jersey

DAN BURTON, Indiana

ELTON GALLEGLY, California

ILEANA ROS-LEHTINEN, Florida

CASS BALLENGER, North Carolina

DANA ROHRABACHER, California

EDWARD R. ROYCE, California

PETER T. KING, New York

STEVE CHABOT, Ohio

AMO HOUGHTON, New York

JOHN M. MCHUGH, New York

RICHARD BURR, North Carolina

JOHN COOKSEY, Louisiana

THOMAS G. TANCREDO, Colorado

RON PAUL, Texas

NICK SMITH, Michigan

JOSEPH R. PITTS, Pennsylvania

DARRELL E. ISSA, California

ERIC CANTOR, Virginia

JEFF FLAKE, Arizona

BRIAN D. KERNS, Indiana

JO ANN DAVIS, Virginia

TOM LANTOS, California

HOWARD L. BERMAN, California

GARY L. ACKERMAN, New York

ENI F.H. FALEOMAVAEGA, American

Samoa

DONALD M. PAYNE, New Jersey

ROBERT MENENDEZ, New Jersey

SHERROD BROWN, Ohio

CYNTHIA A. MCKINNEY, Georgia

EARL F. HILLIARD, Alabama

BRAD SHERMAN, California

ROBERT WEXLER, Florida

JIM DAVIS, Florida

ELIOT L. ENGEL, New York

WILLIAM D. DELAHUNT, Massachusetts

GREGORY W. MEEKS, New York

BARBARA LEE, California

JOSEPH CROWLEY, New York

JOSEPH M. HOEFFEL, Pennsylvania

EARL BLUMENAUER, Oregon

SHELLEY BERKLEY, Nevada

GRACE NAPOLITANO, California

ADAM B. SCHIFF, California

DIANE E. WATSON, California

THOMAS E. MOONEY, SR., Staff Director/General Counsel

ROBERT R. KING, Democratic Staff Director

SUBCOMMITTEE ON EAST ASIA AND THE PACIFIC

JAMES A. LEACH, Iowa, Chairman

DANA ROHRABACHER, California

BRIAN D. KERNS, Indiana

CHRISTOPHER H. SMITH, New Jersey

EDWARD R. ROYCE, California

STEVE CHABOT, Ohio

RICHARD BURR, North Carolina

DARRELL E. ISSA, California

JEFF FLAKE, Arizona

ENI F. H. FALEOMAVAEGA, American

Samoa

SHERROD BROWN, Ohio

JIM DAVIS, Florida

EARL BLUMENAUER, Oregon

GARY L. ACKERMAN, New York

GREGORY W. MEEKS, New York

DIANE E. WATSON, California

JAMES W. MCCORMICK, Subcommittee Staff Director

ENERE LEVI, Democratic Professional Staff Member

DOUGLAS ANDERSON, Professional Staff Member & Counsel

TIERNEN MILLER, Staff Associate

(III)

C O N T E N T S

Page

WITNESSES

Fred Bergsten, Director, Institute for International Economics .......................... 6

Bonnie S. Glaser, Consultant on Asian Affairs ..................................................... 9

Brad Glosserman, Director of Research, Pacific Forum, Center for Strategic

and International Studies ................................................................................... 19

Victor Cha, Associate Professor, Department of Government and School of

Foreign Service, Georgetown University ............................................................ 29

Celeste A. Wallander, Director and Senior Fellow, Russia and Eurasia Program, Center for Strategic and International Studies ...................................... 39

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable James A. Leach, a Representative in Congress from the State

of Iowa, and Chairman, Subcommittee on East Asia and the Pacific: Prepared statement ................................................................................................... 2

The Honorable Eni F.H. Faleomavaega, a Representative in Congress from

American Samoa: Prepared statement ............................................................... 4

Bonnie S. Glaser: Prepared statement ................................................................... 13

Brad Glosserman: Prepared statement .................................................................. 23

Victor Cha: Prepared statement ............................................................................. 32

Celeste A. Wallander: Prepared statement ........................................................... 43

(1)

NORTHEAST ASIA AFTER 9/11: REGIONAL

TRENDS AND U.S. INTERESTS

THURSDAY, NOVEMBER 15, 2001

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON EAST ASIA AND THE PACIFIC, COMMITTEE ON INTERNATIONAL RELATIONS, Washington, DC.

The Subcommittee met, pursuant to call, at 2:33 p.m. in Room

2172, Rayburn House Office Building, Hon. James A. Leach [Chairman of the Subcommittee] presiding.

Mr. LEACH. The Committee will come to order.

On behalf of the Subcommittee, I would like to welcome our

panel of witnesses today. I believe that this will be the inaugural

appearance of all of our witnesses before the Subcommittee, although Mr. Bergsten is well known to this Member and obviously

the Congress for his frequent cogent testimony on economic affairs.

We look forward to hearing all of your views and in the case of

Mr. Glosserman, we hope for the sake of the staff that our newfangled video conferencing technology works as advertised.

The purpose of today’s hearing is to review developments in

Northeast Asia after the events of September 11th and assess key

regional trends and their potential impact on U.S. national interests.

Given the understandable focus on events in Afghanistan, Northeast Asia has temporarily receded from the headlines, but as my

colleagues understand, the region remains vital to U.S. interests

and pivotal to global peace and prosperity.

During the last 19th and for most of the 20th century, Northeast

Asia has served as a geographic cockpit for great power conflict and

rivalry. Even today, it is in Northeast Asia that Asia’s four major

military powers, China, Japan, Russia and the U.S., come into closest proximity. The Korean peninsula remains the final Cold War

frontier, where the threat of large-scale armed conflict involving

U.S. forces remains substantially undiminished.

Northeast Asia is the setting for the potentially explosive rift between China an Taiwan. Also at stake is the future of Mongolia,

a thinly populated country sandwiched between two giant neighbors, that continues to make an impressive transition from oneparty socialism to democracy and market economics, and from a

nation on the fringes of the Asia-Pacific community into one that

is positively involved in the region.

In addition, despite the lingering impact of the Asian financial

crisis, the region continues to rise in global economic importance.

Also of note is the rapidly increasing demand for Persian Gulf enVerDate 11-MAY-2000 16:20 Jan 24, 2002 Jkt 076190 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 F:\WORK\EAP\111501\76190 HINTREL1 PsN: HINTREL1
2

ergy, which has increasingly intertwined the region with the volatile geopolitics of the Middle East and Central Asia. The region’s

exceptional diversity in culture, political systems, and levels of economic development, as well as the geographic size and population

of its countries adds yet another layer of complexity.

For over half a century, the U.S. has played a stabilizing role in

this region. The U.S. seeks to promote a stable, secure, prosperous

and peaceful community in Northeast Asia in which the U.S. is an

active player, partner and beneficiary. An essential element of U.S.

policy has been our treaty-based security alliances with Japan and

South Korea, arrangements which have sustained a credible forward-deployed American military presence to enhance stability,

deter conflict and respond rapidly to other contingencies and

transnational challenges.

The U.S. regional security presence has been a cornerstone of an

engagement strategy that includes traditional diplomacy, promoting open markets and people-to-people contact through educational, scientific and cultural exchanged.

In this regard, one issue for Subcommittee consideration relates

to how we should think about Northeast Asia in the aftermath of

September 11th. Has the U.S. campaign against al-Qaeda and global terrorism fundamentally changed any key bilateral relationships

or altered existing regional dynamics in the region?

I have a number of larger questions that I have in my testimony

which I will submit for the record, but I just want to make it clear

that we look for the insights of this panel who have been selected

with great care and understanding for their expertise on these

questions.

At this point, let me ask Mr. Faleomavaega if he has any opening

statement.

[The prepared statement of Mr. Leach follows:]

PREPARED STATEMENT OF THE HONORABLE JAMES A. LEACH, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF IOWA, AND CHAIRMAN, SUBCOMMITTEE ON EAST

ASIA AND THE PACIFIC

On behalf of the Subcommittee, I would like to warmly welcome our distinguished

panel of witnesses today. I believe that this will be the inaugural appearance of all

of our witnesses before the Subcommittee, although Mr. Bergsten is well-known to

this Member and Congress for his frequent cogent testimony on economic affairs.

We look forward to hearing all of your views and, in the case of Mr. Glosserman,

we hope for the sake of staff that our newfangled video conferencing technology

works as advertised.

The purpose of today’s hearing is to review developments in Northeast Asia after

the events of September 11, and assess key regional trends and their potential impact on U.S. national interests.

Given the understandable focus on events in Afghanistan, Northeast Asia has

temporarily receded from the headlines. But as my colleagues understand, the region remains vital to U.S. interests and pivotal to global peace and prosperity. During the late 19th and for most of the 20th century, Northeast Asia has served as

the geographic cockpit for great power conflict and rivalry. Even today, it is in

Northeast Asia that Asia’s four major military powers—China, Japan, Russia and

the U.S.—come into closest proximity. The Korean peninsula remains the final Cold

War frontier, where the threat of large-scale armed conflict involving U.S. forces remains substantially undiminished. Northeast Asia is the setting for the potentially

explosive rift between China and Taiwan. Also at stake is the future of Mongolia,

a thinly populated country sandwiched between two giant neighbors, that continues

to make an impressive transition from one-party socialism to democracy and market

economics, and from a nation on the fringes of the Asia-Pacific community into one

that is positively involved in the region.

3

In addition, despite the lingering impact of the Asian financial crisis, the region

continues to rise in global economic importance. Also of note is the rapidly increasing demand for Persian Gulf energy, which has increasingly intertwined the region

with the volatile geopolitics of the Middle East and Central Asia. The region’s exceptional diversity in culture, political systems, and levels of economic development, as

well as the geographic size and population of its countries, adds yet another layer

of complexity.

For over a half-century, the U.S. has played a stabilizing role in Northeast Asia.

The U.S. seeks to promote a stable, secure, prosperous and peaceful community in

the region in which the U.S. is an active player, partner and beneficiary. An essential element of U.S. policy has been our treaty-based security alliances with Japan

and South Korea, arrangements which have sustained a credible forward-deployed

American military presence to enhance stability, deter conflict, and respond rapidly

to other contingencies and transnational challenges. The U.S. regional security presence has been a cornerstone of an engagement strategy that includes traditional diplomacy, promoting open markets, and people-to-people contact through educational,

scientific and cultural exchanges.

In this regard, one issue for Subcommittee consideration relates to how we should

think about Northeast Asia in the aftermath of the events of September 11. Has

the U.S. campaign against Al-Queda and global terrorism fundamentally changed

any key bilateral relationships or altered existing regional dynamics in Northeast

Asia?

Over the longer-term, several outstanding issues seem likely to shape the future

of the Northeast Asian environment and United States policy. In this regard, the

Subcommittee looks forward to the views of our experts on the following questions:

• How are the changing economic dynamics in the region—China’s rise and Japan’s stagnation—affecting relationships among the countries in Northeast

Asia, as well as nascent efforts to forge a regional economic and trade identity?

• What is the likely trajectory of China’s political, economic, and strategic transition, and how will regional states approach long-term relations with Beijing?

• What are the prospects that the Japan-U.S. alliance will evolve into the kind

of ‘‘special relationship’’ that America has with the United Kingdom, and can

Japan become a ‘‘normal’’ nation in international security affairs without latent hostility again surfacing between Japan and its neighbors in China and

Korea?

• What are the prospects for ensuring the Taiwan issue remains on a political

track, leading to a peaceful resolution acceptable across both sides of the Taiwan Strait?

• What is the likely evolution of the divided Korean peninsula, and to what extent is the United States prepared for any major change in the status quo

that would alter perceptions of peninsular and regional security?

• Finally, under what conditions will Russia’s strategic prospects improve both

globally and in Northeast Asia, and how will a prospective new Russian-U.S.

partnership affect Moscow’s ability and willingness to cooperate with Washington on Northeast Asian security goals?

We look forward to your insights on these and other issues of the day.

Mr. FALEOMAVAEGA. Mr. Chairman, I, too, would like to offer my

personal welcome to the distinguished members of our panel who

will share with us their wisdom and sense of expertise and understanding of this important region of the world.

Mr. Chairman, while Washington and much of the world is intensely focused on the conflict in Afghanistan, Southwest Asia and

the Middle East, it is also important that we not neglect other regions of the world that are vital to United States interests.

Such a region is Northeast Asia, where the United States has

provided security for decades and continues to guard against possible conflict in the Korean peninsula and the Taiwan Strait, while

engaging with the region’s economic powers that set much of the

global economic agenda.

4

I do commend you again, Mr. Chairman, for calling this hearing

today to examine relations with China, Japan, Korea and Russia

after the terrorist attacks of September 11th and I also want to

join you welcoming again our distinguished members of the panel.

Mr. Chairman, some have argued that the horrific terrorist attacks on America’s World Trade Center and the Pentagon, and the

international war on terrorism that has resulted, have the potential to fundamentally alter our relations with nations in Northeast

Asia. In looking at China, it was not long ago that tensions with

the PRC ran extremely high over the EP–3 aircraft incident. Yet

today China’s President Jiang has joined President Bush in unequivocally condemning the terrorist attacks and has contributed to

U.S. led efforts to combat terrorism.

China has played a significant role by sharing intelligence and

sending over a team of counter-terrorist experts to Washington,

supporting anti-terrorism resolutions in the United Nations Security Council, and even providing humanitarian relief to aid Afghan

refugees, among other things.

In the aftermath of the attacks, Japan has also stepped forward

to aid the U.S. anti-terrorism efforts. Unlike their inaction during

the Gulf War where only funds were contributed, Japan has enacted measures authorizing for the first time to my knowledge, Mr.

Chairman, its self-defense forces to participate by providing

logistical support and intelligence to United States counter-terrorism military operations.

I have long felt that Japan as a democracy and world power

must shoulder its fair share of the military burden to provide international security and this development is a significant step toward

Japan becoming again truly a ‘‘normal’’ nation.

And as I have stated earlier also, Mr. Chairman, I do not see

why Japan and Germany should not join and become permanent

members of the U.N. Security Council as well.

With regards to our former Cold War adversary Russia, it is ironic that President Putin was the first world leader to contact President Bush and convey strong support after the terrorist attacks. As

we know, Russia’s contribution to the fight against international

terrorism has been critical and substantial, including securing the

cooperation of Central Asian republics for U.S. military based operations, opening Russian airspace for U.S. humanitarian and support flights, and close consultations in sharing Russian intelligence.

Mr. Chairman, as a reflection of this new partnership, I deeply

commend President Putin and President Bush for their joint announcement this week to slash U.S. and Russian nuclear arsenals

by two-thirds within the decade. Ridding the world of thousands of

strategic nuclear warheads in addition to terrorism, cannot but enhance peace and stability for all nations.

Thank you again, Mr. Chairman, for the opportunity to provide

this brief comment and I do look forward to hearing from our distinguished panelists.

[The prepared statement of Mr. Faleomavaega follows:]

PREPARED STATEMENT OF THE HONORABLE ENI F.H. FALEOMAVAEGA, A

REPRESENTATIVE IN CONGRESS FROM AMERICAN SAMOA

Thank you Mr. Chairman:

5

While Washington and much of the world is intently focused on the conflict in Afghanistan, Southwest Asia and the Middle East, it is also important that we not

neglect other regions of the world that are vital to United States interests.

Such a region is Northeast Asia, where the United States has provided security

for decades and continues to guard against possible conflict on the Korean Peninsula

and in the Taiwan Strait, while engaging with the region’s economic powers that

set much of the global economic agenda. I commend you, Mr. Chairman, for calling

this hearing today to examine relations with China, Japan, Korea and Russia after

the terrorist attacks of September 11th and I join you in warmly welcoming to the

committee our distinguished panel of witnesses.

Mr. Chairman, some have argued that the horrific terrorist attacks on America’s

World Trade Center and Pentagon, and the international war on terrorism that resulted, have the potential to fundamentally alter our relations with nations in

Northeast Asia.

In looking at China, it was not too long ago that tensions with the PRC ran extremely high over the EP–3 aircraft incident. Yet today, China’s President Jiang

Zemin has joined President Bush in unequivocally condemning the terrorist attacks

and contributing to U.S.-led efforts to combat terrorism. China has played a significant role by sharing intelligence and sending over a team of counter-terrorism experts to Washington, supporting anti-terrorism resolutions in the U.N. Security

Council and providing humanitarian relief aid to Afghan refugees, among other

things.

In the aftermath of the attacks, Japan’s Prime Minister Koizumi Junichiro has

also stepped forward to aid U.S. anti-terrorism efforts. Unlike Japan’s inaction during the Gulf War, where only funds were contributed, Japan has enacted measures

authorizing its Self-Defense Forces to participate by providing logistical support and

intelligence to U.S. counter-terrorism military operations. I have long felt that

Japan as a democracy and world power must shoulder its fair share of the military

burden to provide international security, and this development is a significant step

forward in Japan becoming a ‘‘normal’’ nation.

With regards to our former Cold War adversary, Russia, it is ironic that President

Vladimir Putin was the first world leader to contact President Bush and convey

strong support after the terrorist attacks. As we know, Russia’s contribution to the

fight against international terrorism has been critical and substantial—including securing the cooperation of the Central Asian Republics for U.S. military base operations, opening Russian airspace for U.S. humanitarian and support flights, and

close consultation and sharing of Russian intelligence.

As a reflection of this new partnership, I deeply commend President Putin and

President Bush for their joint announcement this week to slash U.S. and Russian

nuclear arsenals by two-thirds within a decade. Ridding the world of thousands of

strategic nuclear warheads, in addition to terrorism, cannot but enhance peace and

stability for all nations.

Thank you, Mr. Chairman, for the opportunity to briefly comment on these matters and I look forward to the testimony of our distinguished witnesses.

Mr. LEACH. Thank you very much, Eni.

Our five witnesses today are Mr. C. Fred Bergsten, who is Director, Institute for International Economics and who has contributed

so impressively to the new architectural scale of the city.

We like your new building, Fred.

Ms. Bonnie S. Glaser, who is a consultant on Asian Affairs.

Mr. Brad Glosserman is Director of Research, Pacific Forum,

Center for Strategic International Studies, who is joining us from

Hawaii, as I understand it.

Welcome, Brad.

Mr. Victor Cha, who is Associate Professor, Department of Government and School of Foreign Service at Georgetown University.

And Ms. Celeste A. Wallander, who is Director and Senior Fellow, Russia and Eurasia Program at the Center for Strategic International Studies

Before going on, let me say we have a complicating factor on timing, just to place votes on the floor and there are going to be four

to five, which means about a 45-minute circumstance. And so what

6

I would like to do, but if you would rather not I will defer and

make another decision, but I would like to begin with Fred.

We will go 7 or 8 minutes, Fred, and then return. Is that acceptable to you?

And then we will go in the order in which I have introduced people, so the middle witness will be Brad who will be speaking from

a distance. But why do we not begin?

Fred, please proceed.

And all of your statements will be placed in the record in full.

Partly because of the voting circumstance, to the degree you can

summarize in 7 minutes or so, it would be appreciated.

Fred?

STATEMENT OF FRED BERGSTEN, DIRECTOR, INSTITUTE FOR

INTERNATIONAL ECONOMICS

Mr. BERGSTEN. I want to thank you for your kind comments on

our architecture. I will hope to host you at our new home soon and

give you a personally guided tour.

On today’s topic, the events of September 11th not only have

caused unprecedented security problems around the world and particularly here in the United States, but pushed our own economy

and the world economy into recession. This is the first globally synchronized recession in 30 years. We therefore clearly need a coordinated global response to that problem.

Such a response would in fact be an appropriate parallel to the

cooperative, multilateral response to the security dimensions of 9/

11 and it seems to me something we should pursue with equal

vigor.

In that context, the Northeast Asian countries, particularly

Japan, China, but Korea as well, must play an important role and

I have chosen three or four topics from the current environment

which I think are of particular significance to U.S. interests, as

well as to the world economy, to mention in my brief opening remarks today.

The first relates to the Japanese economy and particularly the

fragility of its financial system. I continue to believe that it is the

number one threat the world economy today, to the recovery of the

United States, and therefore something we should be putting very

high priority on trying to deal with.

The Japanese economy, of course, has been flat for 10 years. It

is a lost decade of growth. Japan is now entering into its fourth recession in those 10 or 11 years. The main cause of this is now quite

clear: an essentially bankrupt financial system.

I, and my colleagues, have done extensive research on the topic

and have brought you a couple of our studies. We conclude that

roughly 50 percent of the Japanese banking system is literally

bankrupt on any reasonable accounting basis.

It will require something like 15 to 20 percent of the Japanese

GDP to be spent by the Japanese government to recapitalize the

banking system and put it on any kind of sound basis for the future. Indeed, my own view is that Japan should emulate President

Roosevelt, who applied a bank holiday to a somewhat similar situation in the United States, in the 1930s. Our banks had to stay

closed for 10 days. I would guess the Japanese could do it over a

7

long weekend, but something of that type will be needed. It may

require one or two major bank failures in Japan to trigger it, but

I think it will be essential.

There will be big effects on the world economy if Japan continues

to dither. If Japanese banks do begin to go bankrupt, the rest of

the banking system will have to withdraw their credits from

around the world and repatriate in order to strengthen their balance sheets. That will have significant ripple effects on our own financial system and worldwide. It is something to be avoided if at

all possible.

Therefore, as the U.S. pursues a multilateral strategy to deal

with the global world recession, for example, in this upcoming

weekend’s meetings of the G–7 finance ministers and rescheduled

IMF meetings in Ottowa, we should be pressing Japan to move

very hard on this front.

Prime Minister Koizumi, as you mentioned, has taken very courageous stances, challenged traditional political sensitivities in

Japan on the security side by in essence challenging some of Japan’s constitutional limitations in order to support the security effort in Afghanistan and perhaps more broadly.

I would hope that the economic dimension of the issue would elicit similarly courageous efforts by Prime Minister Koizumi to deal

with admittedly costly, and politically sensitive, issues in Japan on

the economic and financial system. However, without that, I am

afraid Japan will continue to drag the world economy, retard our

own recovery, indeed, threaten financial stability on a global basis,

and therefore be a major difficulty in dealing with the economic

side of the world situation post 9/11.

The second issue I would mention is somewhat more structural

and longer run. It is the continued proliferation of regional monetary and trade agreements throughout East Asia. Now, those arrangements are being developed and negotiated throughout East

Asia as a whole, but the most crucial players in them are the

Northeast Asians, Japan, Korea and China.

On the monetary side, you could characterize what is happening

as the second coming of the Asian Monetary Fund.

You will remember a lot about that, Mr. Chairman, from your

previous incarnation.

With a different name and different modality and much less aggressive approach, the East Asians are now, in my view, moving

in the direction of creating an Asian Monetary Fund. They call it

at this point the Network of Bilateral Swap Agreements, they are

working out financial ties among payors of all the countries in the

region, the amounts negotiated so far approximate $50 billion.

They are getting bigger and I think they will be very significant.

All this could be quite positive, could be quite supportive, for the

global system if it is done in the proper way. There are some in

East Asia who want to do it in a way fully consistent with global

institutions, the IMF and the like, but there are others who view

it, at least over time, as becoming an alternative to the existing

global institutions in which we have such a stake.

It is therefore, I think, very much in our interests to watch the

situation closely—try to tilt it in a direction that will be consistent

with the global systemic arrangements in which we have put so

8

much stake over time and try to make sure that it is both supportive of and consistent with a stable global monetary system

which is so much in our interests.

The second aspect of the regional evolution is the negotiation of

a vast proliferation of bilateral, plural-lateral, sub-regional trade

agreements in East Asia. Japan has become particularly active in

this area. They have completed a deal with Singapore, they have

negotiated with Mexico, Chile, Canada, maybe Korea, maybe

Southeast Asia as well.

China has now entered this arena very actively. Premiere Zhu

Rongji proposed a year ago, a bilateral China-Southeast Asia free

trade agreement that has recently been pushed very substantially

and is moving, I believe, toward fruition. This is on top of lots of

small bilateral agreements.

What is most significant is the concurrent discussion of a Northeast Asia free trade agreement among China, Korea and Japan and

possibly what the Asians call a 10 plus 3, Asean plus Northeast

Asian, free trade agreement that would cover all of East Asia, the

Southeast Asians plus China, Korea, Japan.

We have done a study on the economic effects of all these possible permutations. Suffice it to say that a big East Asian agreement as a whole would almost immediately cut off something like

$25 billion of U.S. exports to the region.

The point is that all of these arrangements, of course, discriminate against the United States. They have adverse effects on our

economic interests. They are undertaken in part because we have

been unable to negotiate multilaterally with them, either at APEC

or through the WTO in recent years, because of the lack of any

kind of fast track or trade promotion authority for the President.

And therefore, in defending our interests in that area we want to

both be sure that the arrangements again are consistent with the

global and broader devices of which we are members, like APEC,

but also position ourselves to resume active U.S. participation in

multilateral trade negotiations.

The agreement at Doha in the last 48 hours to launch a new

round in the WTO provides a way to do that, but we, of course, will

be unable to do it unless we are able to give the President negotiating authority. That is why trade promotion authority, fast track

as it has been known in the past, is so important and why it is imperative for the President and Congress to work out an agreement

to get that authority.

Failing that, these continued arrangements in Asia, including

Northeast Asia, will discriminate against our trade, hurt us economically and, perhaps more importantly from the standpoint of

this Committee, run the risk of dividing the two sides of the Pacific, creating new institutional arrangements in East Asia that

will divide that part of the world from us in a broader political

sense.

Now, there are obviously limitations on how fast China, Korea

and Japan are going to move toward any kind of new agreements

among themselves. They have political problems, there are economic hesitations each have moving ahead, but these are serious

initiatives, they are being pursued at head of state level, they are

actively either under consideration or, in some cases, underway or

9

in other cases actually being completed. It is an area that we must

keep our eye on very closely because of the big impact on both U.S.

economic and foreign policy interests.

Thank you.

Mr. LEACH. Thank you, very much, Fred.

And, Bonnie, before turning to you, I think it would be unfair to

get you started for a minute and interrupt, and so what we will do

is recess for the votes on the floor and I think it could be 30 to 45

minutes and so I have to caution you on that.

The Committee is in recess.

[Recess.]

Mr. LEACH. If the Committee would come back to order.

Our next witness is Ms. Bonnie Glaser.

Ms. Glaser, please proceed.

STATEMENT OF BONNIE S. GLASER, CONSULTANT ON ASIAN

AFFAIRS

Ms. GLASER. Thank you, Mr. Chairman, for the opportunity to

take part in these hearings today.

I will focus my comments on the impact of the changed security

environment on U.S. relations with China and the situation in the

Taiwan Strait and I will also highlight several key issues and

trends pertaining to China that have important implications for

U.S. interests and U.S. policy and thus warrant continued close attention by Members of Congress.

The main theses of my remarks is that U.S. and Chinese interests overlap to some extent in combating terrorism. The reordering

of American security priorities in the wake of the September 11th

attacks has provided an opportunity for Washington and Beijing to

work together toward a common goal and this has contributed to

an improvement in the overall atmosphere of the bilateral SinoU.S. relationship. However, U.S. and Chinese interests in fighting

terrorism are not identical and in some important ways may potentially conflict.

Moreover, the longstanding areas of friction in the bilateral relationship remain unchanged and they require continued close attention as well as careful management. It is thus premature to conclude that Sino-American relations are on a steady and upward

course.

There are several compelling reasons why it is in China’s interests to side with the United States in this campaign against terrorism and I will briefly mention three.

First, obviously, maintaining a good relationship with the United

States is indispensable for China’s continued economic growth.

Second, in recent years, China concern about the Islamic separatist movement in Xinjiang has been on the rise. Although not all

those who advocate separatism employ violent means, there certainly have been incidents of terrorist attacks and bus bombings by

Uighur radicals. The Chinese now claim that about 1000 Uighur

separatists have received training in bin Laden’s camps in Afghanistan. I do not know about the reliability of that figure.

Third, China is increasingly dependent on imported crude oil and

has a strong interest in stable, low oil prices as well as an

unimpeded oil supply. If radical Islamic fundamentalism spreads to

10

major oil producing countries, this would drastically increase world

oil prices and threaten to undermine China’s economic development.

Beijing has contributed, I think, to the U.S. led global effort in

important ways that should not be underestimated. Most of these

have been on the diplomatic front and on the economic front. The

Chinese have voted in favor of the anti-terrorism resolutions in the

U.N. Security Council. I think importantly Jiang Zemin permitted

the United States and President Bush to redirect the agenda of the

Shanghai APEC meeting, which had originally been designed to

showcase China’s economic miracle, to the U.S.-led war against terrorism.

The standing committee of China’s National People’s Congress

has just ratified the PRC’s accession to the International Convention for the Suppression of Terrorist Bombings.

In the financial sphere, Beijing has promised to do its utmost to

freeze the assets of terrorist organizations and cut off the flow of

funds to terrorists. The Chinese just signed the International Convention for the Suppression of Financing of Terrorism. It remains

to be seen whether they move to implementation in this regard and

I think we should continue to watch it closely.

In the area of intelligence, the Chinese have been very forthcoming in providing information on terrorist networks.

And, finally, China has supplied a significant amount of food relief for refugees coming out of Afghanistan. They have announced

1.21 million in emergency aid to Pakistan, agreed to provide

$121,000 in aid to the UNHRC and most recently announced that

they would provide an additional 60 truckloads of humanitarian

supplies valued at $1.7 million.

So this is not an insignificant contribution. The contribution has

not been in the military sphere nor, as I understand it, has this

Administration asked China to provide any military assistance.

As I said at the outset, although U.S.-Chinese collaboration to

combat terrorism proceeds, the contentious issues in the relationship nevertheless remain and it is thus erroneous to conclude that

Sino-U.S. relations are on a path to steady partnership. Differences

on human rights persist, particularly freedom of expression and the

freedom to voice and practice one’s personal faith.

Another area of divergence is U.S. development and deployment

of missile defense systems, which the Chinese continue to resolutely oppose.

I want to underscore that our differences in the area of proliferation should continue to be a major priority for the United States.

Chinese arms sales around the world and Beijing’s failure to adequately curb the proliferation of weapons of mass destruction remain intractable bilateral issues. I think our concerns now center

mainly on Chinese exports of ballistic missile technology to Pakistan and exports of dual use technology to Iran that could be used

not only for chemical but also for biological weapons.

And China also has yet to fulfill a promise that they made last

November to publish a list of missile components barred from export and establish a system of enforcement.

As far as the impact of the September 11th events on the Taiwan

Strait, my preliminary conclusion is that the tragic events have

11

had very little immediate impact on the situation across the Strait.

The unfolding security cooperation between Beijing and Washington did trigger some uneasiness in Taipei. People were worried,

the government was worried that U.S.-Chinese cooperation might

in some way come at China’s expense. That anxiety is understandable, since Taiwan has been the victim of past shifts in the U.S.

view of its strategic interests in history.

There has also been concern in Taiwan that mainland China

might take advantage of the opportunity created by Washington’s

political and military distraction to step up intimidation of Taiwan,

but so far Taiwan’s fears appear to be unfounded. The Bush Administration has reassured the government in Taipei that U.S. policy has not changed and that U.S. interests will not be sacrificed

for the sake of achieving other pressing U.S. foreign policy goals.

Although military attention across the Taiwan Strait is not high,

political differences nevertheless remain acute. Beijing is

unyielding in its position that Taipei recognize the existence of one

China before it will deal directly with the DPP government in Taipei and President Chen Shui-bian in Taiwan remains unwilling to

agree to mainland preconditions for opening cross-strait talks, preferring instead to put all issues up for discussion. So the political

stalemate endures.

On December 1st, there will be important elections in Taiwan.

They will hold island-wide elections for legislatures and for local

magistrates. No party, I think, is expected to win a majority of

seats in the legislature and it is unclear whether this election will

have any major impact on Taiwan’s policy toward China or on

cross-strait relations, but President Chen has promised to form a

coalition government after the elections and the impact on the

cross-strait situation would vary depending on the composition of

the coalition and the policies that its members subsequently agree

to pursue.

In my view, the standoff in relations between Beijing and Taipei

probably will continue for at least another couple of years. A leadership succession is already underway on the mainland that is likely to distract Beijing’s attention, along with other urgent domestic

issues such as sustaining economic growth. China will hold its 16th

Party Congress this fall and that will begin the process of

generational change in China that will not be completed until the

following March in 2003 when the National People’s Congress is

held.

I do want to underscore one positive sign for cross-strait stability

and that is the growing economic and social interaction across the

strait. Two-way trade reached more than $30 billion last year of

which Taiwan enjoyed a surplus of $15 billion U.S. Taiwan investors have poured some $60 billion into the mainland since the late

1980s. Now, the figures range from $300,000 to $400,000 of Taiwan

traders, merchants and manufacturers who have moved from Taiwan and have now set up residence in inner suburbs around

Shanghai. The entry of China and Taiwan into the WTO is likely

to lead to a further substantial increase in cross-strait trade. So although economic interdependence will certainly resolve the political

impasse, it nevertheless is creating growing constituencies on both

12

sides of the strait that I think both need stability and predictability.

Clearly, the United States has a strong, abiding interest in the

peaceful resolution of differences between Taipei and Beijing and

we should continue to urge both sides of the straight to resume dialogue. Destabilizing actions by either side should be discouraged.

The U.S., I believe, should avoid inserting itself in between Taiwan

and China and we should steer clear of suggesting solutions to

their disputes.

Most importantly, U.S. policy should remain clear and consistent

to prevent misunderstanding and miscalculation in what remains

a volatile and dangerous part of Northeast Asia.

Finally, Mr. Chairman and Members of the Subcommittee, what

I would like to do is just highlight four key issues and trends pertaining to China that have important implications for U.S. interests and policy.

First, the implications of China’s entry into the WTC. While

clearly China’s entry into the WTO will unquestionably have a

positive impact on the China economy and society in the long run,

I think it has to be recognized that in the short run there are

bound to be some political and economic challenges that will be

posed to the Chinese government. The pains of reform will be increased and the pressures on the government from society are likely to intensify.

I question the Chinese government’s ability to cope with these

short-term difficulties, given the inherently weak political system

and rising social and political stress in China society.

U.S.-Chinese relations I think could also be challenged by increased friction in the areas of trade and human rights as a result

of China’s entry and adjustment of its entry into the WTO. So during this inevitable period of wrenching transformation in China, I

think it is important for the U.S. to continue to promote rule of

law, democracy, and human rights in China.

Secondly, we need to pay attention to China’s leadership transition over the next 2 years. All the key figures at the top level of

China’s government will change, its premiere its President and the

head of its National People’s Congress. They will all retire, as well

as the senior levels of the Chinese military. The person who is slated to replace President Jiang Zemin as not only President but as

party secretary as well is basically a party functionary, Hu Jintao,

largely unknown to the outside world and also this own people.

I think that it is very important that China have a smooth and

stable leadership transition, not just for China’s own people, but

also for the interests of Northeast Asia and for the United States.

Should that transition not go smoothly, it would have profoundly

negative implications for the region and for the United States as

well as for China.

Third, we need to be aware of the volatile mix of rising nationalism and anti Americanism in China. The Chinese public views

the United States as increasingly posing obstacles to China’s emergence as a great power and to the reunification of China and Taiwan. Events in recent years such as the 1999 bombing of the Chinese embassy in Belgrade and the more recent EP–3 collision this

past April are viewed by most Chinese as evidence of American

13

hostility toward China and I think that the Chinese leadership has

not yet made a convincing case to the Chinese people that it is in

their country’s interests to cooperate with the United States. Most

Chinese certainly do not feel an urgent direct threat from terrorism, as do many Americans, so if the anti-terrorism campaign

were to expand to the use of force against other countries, I think

it might be difficult for Chinese leaders to sustain the support of

the Chinese people for continued cooperation with the United

States.

Fourth and finally is China’s continued military build-up opposite Taiwan. Clearly, the PRC continues to enhance its military capabilities deployed opposite Taiwan at a measured but nevertheless

steady pace and these forces are aimed primarily at intimidating

Taipei, but they are also being shaped to combat both Taiwan and

American forces in any potential conflict in the Taiwan Strait.

China continues to build up its short-range ballistic missiles opposite Taiwan. They number today probably somewhere between 300

and 350 and you can compare that with 1995, 1996, when they

numbered between 30 and 50, and this is especially alarming. Taiwan has no reliable defense against these missiles.

Chinese leaders have recently emphasized that they prefer to

achieve reunification peacefully, but they continue to refuse to renounce the use of force against Taiwan and they have not abandoned the position that Taipei’s indefinite postponement of talks

with the mainland may invite a PRC attack.

So I think it is imperative that the U.S. continue to provide Taiwan with defensive weapons, but ultimately security for Taiwan

will remain elusive in the absence of a political solution. The arms

race underway in the Taiwan Strait is ignored at our own peril.

Mr. Chairman and Members of the Committee, thank you for

giving me the opportunity to address these critical questions and

I look forward to your comments and questions.

[The prepared statement of Ms. Glaser follows:]

PREPARED STATEMENT OF BONNIE S. GLASER, CONSULTANT ON ASIAN AFFAIRS

I. INTRODUCTION

Allow me to begin by thanking you, Mr. Chairman, and the members of this distinguished Subcommittee for the opportunity to take part in the hearings you are

holding today on the topic of the situation in Northeast Asia following the catastrophic September 11 terrorist attacks and the beginning of what promises to be

a long war against terrorism. I will focus my comments on the impact of the

changed security environment on U.S. relations with China and the situation across

the Taiwan Strait. I will also highlight several key issues and trends pertaining to

China that have important implications for U.S. interests and policy and thus warrant continued close attention by Members of Congress. As a student and observer

of Chinese security and foreign policy, I am looking forward to this timely and important exchange of views.

The main thesis of my remarks is that U.S. and Chinese interests overlap to some

extent in combating terrorism. The re-ordering of American security priorities in the

wake of the September 11th attacks has provided an opportunity for Washington

and Beijing to work together toward a common goal and this has contributed to an

improvement in the overall atmosphere of the bilateral Sino-U.S. relationship. However, U.S. and Chinese interests in fighting terrorism are not identical and, in some

important ways, they potentially conflict. Moreover, the long-standing areas of friction in the bilateral relationship remain unchanged and they require close attention

as well as careful management. It is thus premature to conclude that Sino-American

relations are on a steady, upward course. As for relations across the Taiwan Strait,

the political stalemate continues and is unlikely to be broken in the coming months,

14

but tensions are not high. The expansion of cross-Strait economic and social interaction provides both China and Taiwan with a growing stake in peacefully resolving

their differences.

II. CHINA’S INTEREST IN COMBATING TERRORISM

As President Bush noted at the Asia Pacific Economic Conference in Shanghai

last month, Chinese President Jiang Zemin’s expression of condolences and his declaration of China’s condemnation of the heinous crimes committed on September 11

were conveyed ‘‘immediately,’’ and with ‘‘no hesitation’’ and ‘‘no doubt.’’ Subsequently, Beijing responded in various ways to support the U.S.-led global effort to

eradicate the scourge of terrorism. There are several compelling reasons why it is

in China’s interests to side with the United States in fighting against terrorism.

First, maintaining a good relationship with the U.S. is indispensable for China’s

continued economic growth. Without sustained high-levels of U.S. direct investment

and an open U.S. market for Chinese goods, China’s aspiration to become a middlelevel developed country by 2050 will be difficult, if not impossible to realize. The

preservation of a favorable security environment for China and the achievement of

reunification with Taiwan are also in part contingent on the state of Chinese ties

with the United States. Beijing seized on the opportunity presented by the tragedy

of September 11 to mute differences with Washington and focus on a common security concern.

Second, in recent years, Chinese concern about the Islamic separatist movement

in Xinjiang has been on the rise. Although not all those who advocate separatism

employ violent means, there have been incidents of terrorist attacks and bus bombings by Uighur radicals. The Chinese claim that about 1000 Uighur separatists have

received training in Bin Laden’s training camps. Eliminating the Taliban government in Afghanistan might help eradicate the terrorist threat to China’s western

region.

Third, China is increasingly dependent on imported crude oil and has a strong

interest in stable, low oil prices as well as an unimpeded oil supply. If radical Islamic fundamentalism spreads to major oil-producing countries, this will drastically

increase world oil prices and threaten to undermine China’s economic development.

At present, China’s annual oil imports account for nearly a third of the country’s

total oil consumption. As the economy develops, the demand for oil is expected to

increase sharply, as efficiency demands require China to rely less on coal. Demand

for oil in China is forecasted to increase sharply in the coming decades and the total

volume of China’s oil imports by 2020 will likely account for at least half of its total

oil consumption. In 1999, China’s oil imports from the Middle East accounted for

46.2 percent of its total oil imports, including Muslim countries such as Iran, Oman

and Saudi Arabia.

III. BEIJING’S CONTRIBUTION TO THE GLOBAL ANTI-TERRORIST CAMPAIGN

China’s has contributed to the U.S.-led global effort to punish the perpetrators of

the September 11 attacks and exterminate terrorism in the following ways:

• On the diplomatic front, the Chinese have voted in favor of anti-terrorism resolutions in the United Nations Security Council. In mid-September, they dispatched a vice foreign minister to Pakistan to shore up that country’s support

for opposing Bin Laden and the Taliban government in Afghanistan that provides him sanctuary. Beijing also agreed to re-direct the agenda of the Shanghai APEC meeting, originally designed to showcase China’s economic miracle,

to the U.S.-led war against terrorism.

• In the financial sphere, Beijing has promised to do its utmost to freeze the

assets of terrorist organizations and cut off the flow of funds to terrorists.

• The Chinese have been helpful in providing intelligence and information on

terrorist networks. Such information might come from spies monitoring the

activities of terrorists or from listening posts capable of eavesdropping on

communications in Afghanistan that China maintains on its northwestern

border. China has also sealed its border with Afghanistan and is moving toward agreeing to a U.S. request to open an FBI office in Beijing.

• China has supplied a significant amount of food relief for refugees from Afghanistan. Beijing announced $1.21 million in emergency aid to Pakistan;

agreed to provide $121,000 to UNHCR; and announced it will provide an additional 60 truckloads of humanitarian supplies valued at $1.7 million.

There is more that Beijing can do to support the global anti-terrorism campaign.

For example, the Chinese could offer the use of Chinese airfields and airspace to

15

support humanitarian or combat operations against Afghanistan. They could also

seek to control exports of small arms that might reach terrorist groups. The Chinese

and the other five members of the Shanghai Cooperation Organization (Russia,

Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan) could invite the United States

to participate as an observer in the SCO, a regional multilateral organization that

was created in part to strengthen cooperation to curb terrorism. SCO members have

pledged to share information and plan to establish a ‘‘Shanghai Cooperation Organization Anti-terrorist Center’’ in Bishkek. They will also cooperate to deter illegal

trading of weapons and narcotics, illegal immigration, and other forms of international crime.

IV. U.S.-CHINESE INTERESTS OVERLAP BUT DIFFERENCES PERSIST

While U.S. and Chinese interests converge in the eradication of terrorist training

camps and support networks in Afghanistan, the two countries do not necessarily

agree on the best means to achieve this objective. China has not explicitly endorsed

the U.S. military action in Afghanistan and continues to warn that anti-terrorist actions should have ‘‘clearly defined targets,’’ should ‘‘hit accurately,’’ and ‘‘avoid innocent casualties.’’ If the war against terrorism is widened to target other countries,

China’s support may waver, especially if the U.S. seeks global cooperation in imposing sanctions and curtailing business with these countries. Chinese firms have significant business interests in Iran and to some extent with Iraq, and may be reluctant to end these ties. Moreover, American and Chinese broader national security

interests beyond exterminating terrorists are by no means identical. Beijing doesn’t

want the U.S. global campaign against terrorism to bolster America’s position as the

sole superpower in a unipolar world. And the Chinese worry that the U.S. will gain

a permanent military foothold close to China’s borders, in Central Asia as well as

in Afghanistan. Another area of divergence is U.S. development and deployment of

missile defense systems, which the Chinese continue to resolutely oppose.

The Chinese have not sought quid pro quos for their positive contributions to the

war against terrorism, but they hope—perhaps even expect—that there will be some

payback. Beijing anticipates that the U.S. focus on terrorism will mute American

criticism of its harsh treatment of Uighur separatists in Xinjiang. While the U.S.

should support Chinese efforts to root out and punish terrorists, we should be wary

of Beijing’s practice of lumping together terrorists, separatists and dissidents. ‘‘The

war on terrorism,’’ Bush asserted in Shanghai, ‘‘must never be an excuse to persecute minorities.’’

Beijing also hopes that by backing the war against terrorism, Washington will be

more sympathetic and accommodating to Chinese aspirations for reunifying the

Mainland with Taiwan. The Chinese would like to see a reduction in U.S. arms

sales to Taiwan and U.S. pressure on Taiwan President Chen Shui-bian to accept

Beijing’s ‘‘one-China principle’’ and to enter into negotiations with the Mainland.

Trade-offs involving Taiwan’s security must not be entered into. The United States

should remain firm in its commitment to assist Taiwan in maintaining a sufficient

self-defense capability, as articulated in the Taiwan Relations Act. The PRC continues to deploy forces across the Taiwan Strait specifically aimed at Taiwan—and

at U.S.—capabilities. The provision of adequate weapons to Taiwan to defend itself

remains an important part of America’s policy aimed at deterring the use of force

and promoting a peaceful resolution of cross-Strait differences. The Bush administration has appropriately reassured Taipei that Chinese assistance in the US-led

anti-terrorism coalition will in no way affect US policy towards Taiwan, including

arms sales to the island.

The common menace of terrorism has provided an opportunity for U.S.-Chinese

collaboration on a security matter that is of concern to both countries, although the

urgency is far greater for Washington than it is for Beijing. At the same time, the

issues that divide the U.S. and China remain and thus it is erroneous to conclude

that Sino-American relations have been fundamentally transformed or are on the

path to a steady partnership. Differences on human rights persist, particularly freedom of expression and the freedom to voice and practice one’s personal faith. Tibet

is another area of divergence. The U.S. should unfailingly continue to support the

preservation of Tibet’s unique religious, cultural and linguistic identity and the protection of the human rights of all Tibetans. We should also continue to be, clear and

straightforward with China about our interests in maintaining freedom of navigation in international waters and airspace.

Chinese arms sales around the world and Beijing’s failure to adequately curb the

proliferation of weapons of mass destruction are also contentious bilateral issues.

U.S. concerns now center mainly on Chinese exports of ballistic missile technology

to Pakistan and exports of dual-use technology to Iran that can be used for chemical

16

and biological weapons. The current military conflict in Afghanistan and the threat

of WMD terrorism have transformed these issues from abstract proliferation concerns into concrete threats to American and other human lives. If Pakistan’s nuclear

weapons fall into the hands of Islamic terrorists, the blame will be laid on Beijing,

which provided substantial assistance to Pakistan’s nuclear weapons program in the

1980s. China also has yet to fulfill a promise made last November to publish a list

of missile components barred from export and establish a system of enforcement.

V. POLITICAL STALEMATE LIKELY TO PERSIST ACROSS THE TAIWAN STRAIT

The tragic events of September 11 have had little, if any, immediate impact on

relations across the Taiwan Strait. Unfolding security cooperation between the U.S.

and China to counter terrorism has created uneasiness in Taiwan, however, where

many are worried that U.S.-Chinese cooperation could come at Taipei’s expense.

This anxiety is understandable, since Taiwan has been the victim in the past of

shifts in the US view of its strategic interests. There is also concern in Taiwan that

the Mainland may take advantage of the opportunity created by Washington’s political and military distraction to step up intimidation of Taiwan or cause instability

on the island.

So far, Taiwan’s fears appear to be unfounded. The Bush administration has reassured the government in Taipei that its policy has not changed and that Taiwan’s

interests won’t be sacrificed for the sake of achieving other pressing U.S. foreign policy goals. China’s strategy and tactics toward Taiwan also show no signs of revision.

Beijing continues to adhere to a policy toward Chen Shui-bian of ‘‘listening to his

words and watching his deeds,’’ while pursuing ‘‘united front’’ tactics of expanding

contacts with Taiwan’s opposition parties and wooing businessmen and investors.

Tensions across the Strait are not high, but political differences remain acute.

Beijing continues to insist that Taipei recognize the existence of one China before

it will deal directly with the DPP government in Taiwan. President Chen Shui-bian

remains unwilling to agree to the Mainland’s preconditions for cross-Strait talks,

preferring instead to put all issues up for discussion. He has questioned the PRC’s

interpretation of a verbal agreement between the two sides in 1992 as a ‘‘consensus’’

on the one-China principle. Chen continues to call for cross-strait reconciliation on

the basis of the principles of democracy, parity, and peace, and demands that the

will and right of choice of the 23 million people of Taiwan be respected and upheld.

The downturn in Taiwan’s economy in the past year and sharp political infighting

which has hampered the ability of President Chen to work effectively with the legislature to implement his agenda of political and economic reform have ironically contributed to the enhancement of stability across the Strait. Beijing sees Taiwan as

mired in domestic difficulties and thus unable to take provocative separatist actions.

Time is once again judged to be on China’s side as Taiwan’s economic dependence

on the Mainland increases concomitant with an expansion of cross-Strait social and

cultural interaction.

On December 1, Taiwan will hold island-wide elections for legislators and local

magistrates. Following the elections, President Chen has pledged to form a coalition

government. In one possible scenario, a coalition comprising elements of the Kuomintang and the People’s First Party may produce a compromise on a pro-active policy toward the Mainland, particularly in the economic sphere. Beijing may then be

persuaded that there are potential benefits to ending its policy of isolating the ruling party in Taiwan and there may be a window of opportunity for a breakthrough

in the cross-Strait stalemate. An alternative outcome of Taiwan’s elections could be

an alliance between the DPP and the recently formed Taiwan Solidarity Union,

backed by former Taiwan President Lee Teng-hui, which would diminish the likelihood of new flexibility emerging in the policies of both sides of the Strait and reduce

the odds of a resumption of cross-Strait dialogue in the near term.

In my view, the standoff in relations between Beijing and China will probably continue for another year or so. A leadership succession is already underway on the

Mainland that is likely to distract Beijing’s attention along with other urgent domestic issues such as sustaining economic growth and preserving political and social

stability. The 16th Party Congress will be held next fall that will begin the process

of generational change in China. The selection of new party and government leaders

will not be completed until the National People’s Congress in March 2003. The task

of charting a course for China’s future, including its relationship with Taiwan, will

likely fall, to China’s fourth generation leaders.

One positive sign for cross-Strait stability is the growing economic and social ties

across the Strait. Two-way trade reached more than $30 billion dollars last year,

of which Taiwan enjoyed a surplus of US$15 billion. Taiwan investors have poured

some US$60 billion into the Mainland since the late 1980s. More than 300,000 TaiVerDate 11-MAY-2000 16:20 Jan 24, 2002 Jkt 076190 PO 00000 Frm 00020 Fmt 6633 Sfmt 6621 F:\WORK\EAP\111501\76190 HINTREL1 PsN: HINTREL1
17

wan merchants, manufacturers and traders have chosen to reside on the Mainland.

The impending entry of China and Taiwan into the WTO is likely to lead to a further substantial increase in cross-Strait trade. Although economic interdependence

will not in itself resolve the political impasse, it is creating growing constituencies

on both sides of the Strait that need stability and predictability.

Last week, Taipei lifted the controls on cross-strait economic and trade exchanges—including scrapping the $50 million ceiling on individual Mainland investment cases—which promises to further promote direct investment and trade. By

ending the ‘‘no haste, be patient’’ policy that Lee Teng-hui put in place to limit investment in the Mainland and prevent China from gaining access to Taiwan’s technologically sophisticated industries, Taiwan hopes that companies will send home

more of their profits from China.

New regulations are expected to be issued soon that will determine which categories of technologies to allow into China. Some controls are likely to remain in

place in the computer industry, for example on the manufacture of semi-conductors,

as well as on infrastructure projects like bridges, and roads, which run the risk of

helping the PLA deploy forces along the Straits. The Taiwan government also plans

to urge businesses to adopt a policy of greater regional diversification to avoid excessive financial risk as well as over-dependence on the Mainland that may increase

Taiwan’s political vulnerability. Government efforts to circumscribe investment in

China are likely to run into the perennial determination of the business community

to seek profit, however, and are unlikely to be any more successful in the future

than they have been in the past.

The United States has a strong, abiding interest in the peaceful resolution of differences between Taipei and Beijing. We should continue to urge both sides of the

Strait to resume dialogue as soon as possible. Destabilizing actions by either side

should be discouraged. The U.S. should avoid inserting itself in between Taiwan and

China and steer clear of suggesting solutions to their disputes. Most importantly,

U.S. policy should remain clear and consistent to prevent misunderstanding and

miscalculation in what remains a volatile and dangerous part of Northeast Asia.

VI. KEY ISSUES AND TRENDS

Mr. Chairman and members of the Subcommittee, I would like to close my remarks by highlighting several key issues and trends pertaining to China that have

important implications for U.S. interests and policy and thus warrant continued

close attention by Members of Congress.

U.S. and Chinese Security Interests, Converging or Diverging?

Facing a common threat of terrorism, Beijing and Washington have seized the opportunity to collaborate and cooperate to their mutual benefit. Whether this convergence of interests is sustainable and creates an environment in which differences

in other areas of the relationship can be narrowed remains uncertain. China’s desperate hopes for better Sino-U.S. relations have masked the potential worries that

the Chinese harbor about the U.S.-led war against terrorism. These include: 1.

Transformation of U.S.-Russian relations and a possible compromise on the AntiBallistic Missile Treaty that allows the U.S. to proceed with development and deployment of missile defense systems; 2. Improved U.S. relations with Central Asian

states on China’s borders with an enduring military/security feature; 3. Closer U.S.

relations with Pakistan, China’s long-standing ally; 4. A strong U.S.-led global coalition that may bolster America’s position as the sole superpower in a unipolar world.

China’s Pending Leadership Succession

Over the next two years, China’s top leadership will change. President Jiang

Zemin, Premier Zhu Rongji and National People’s Congress Standing Committee

Chairman Li Peng will retire, as will other lesser-known senior figures, both civilian

and military. Vice President Hu Jintao, a party functionary who is largely unknown

to the Chinese people as well as to the outside world, is likely to assume the important posts of party chairman and president. It remains uncertain whether Jiang

Zemin will continue to exercise influence from the behind the scenes. Jiang is increasingly denigrated by the Chinese people for having accomplished little during

his tenure and is under pressure to hand over power to the younger generation. A

smooth and stable leadership transition is critical for China’s future. Failure to

carry out this process smoothly will have profound implications not only for the Chinese people, but also for the region and for American interests.

Growing Nationalism and Anti-Americanism in China

Rising nationalism and anti-Americanism are creating a very volatile mix in

China. The Chinese public views the United States as increasingly posing obstacles

18

to China’s emergence as a great power and to the reunification of China and Taiwan. Events in recent years such as the 1999 accidental bombing by NATO planes

of the Chinese embassy in Belgrade and the collision between a Chinese fighter jet

and a U.S. surveillance plane last April are viewed as evidence of American hostility

toward China. The Chinese leadership has not made the case to the Chinese people

that it is in their country’s interest to cooperate with the United States. Most Chinese do not feel an urgent, direct threat from terrorism, as do many Americans. Chinese leaders will have great difficulty sustaining popular support for siding with the

United States if the war in Afghanistan drags on with high civilian casualties and

the global coalition begins to crumble.

Implications of China’s Entry into the WTO

While China’s entry into the World Trade Organization will almost unquestionably have a positive impact on China’s economy and society in the long run, it

should be recognized that in the short run WTO membership is bound to pose unprecedented economic and political challenges to the Chinese government. WTO

entry will likely increase the pains of reform and intensify pressures on the government. The Chinese government’s ability to cope with these short-term difficulties is

not certain, due to an inherently weak political system and rising social and political stress in Chinese society. U.S.-China relations could also be challenged by increased friction in the areas of trade and human rights. During this inevitable period of wrenching transformation in China, the United States should continue to

promote rule of law, democracy and human rights. I especially urge Members of

Congress to support funding for rule of law initiatives in China. Helping China to

create fair laws that conform to WTO’s regulations will bring huge benefits to the

Chinese people.

China’s Military Buildup Opposite Taiwan

China’s military deployments against Taiwan proceed at a measured, but steady

pace. Its buildup of short-range ballistic missiles (currently numbering 300–350,

compared to 30–50 in 1995–96) is especially alarming. Beijing regards these missiles

as essential to deter Taiwan from moving toward a declaration of independence. Taiwan has no reliable defense against these missiles. Chinese leaders have recently

emphasized that they prefer to achieve reunification peacefully, but they refuse to

renounce the use of force against Taiwan and have not abandoned the position that

Taipei’s indefinite postponement of talks with the Mainland may invite a PRC attack. The U.S. must continue to provide for Taiwan with defense weapons, but ultimately security for Taiwan will remain elusive in the absence of a political solution.

The arms race underway in the Taiwan Strait is ignored at our own peril.

Mr. LEACH. Well, thank you very much, Ms. Glaser.

Before turning to Hawaii for our next witness, I feel compelled

to make just a one-sentence comment about the first part of your

talk.

Now and again this Committee and Members of Congress have

admonished other countries for human rights violations and China

has sometimes been part of that, but I think we are all obligated

to commend China for its humanitarian assistance at this time to

the Afghan circumstance and we also want to express a certain appreciation for Chinese openness with the United States on the

plight that we face on the terrorism front. And so I think it is very

important if this country is ever to criticize another country it had

better be alert to express appreciation when it is due, and I think

it is clearly due the last several months.

Now we will turn to Mr. Brad Glosserman, who is Director of Research for Center for Strategic and International Studies.

Brad, you come to us via video and you are welcome to proceed

at your pace.

19

STATEMENT OF BRAD GLOSSERMAN, DIRECTOR OF RESEARCH, PACIFIC FORUM, CENTER FOR STRATEGIC AND

INTERNATIONAL STUDIES

Mr. GLOSSERMAN. Thank you. Aloha, Chairman Leach, distinguished Committee Members. It is an honor and a privilege to appear before you today. My hat is off to your techno crew for making

this connection work. I probably should correct that introduction by

noting that I am the Director of Research at Pacific Forum, which

is the Honolulu arm of CSIS. I would hate to presume or reach out

and grab any more authority than I have.

I think that despite all the changes that have occurred since September 11th, I think we have to realize that history did not begin

anew on that day. And in Northeast Asia in particular, old animosities and tensions persist and, if anything, the aftermath of September 11th has the potential to sharpen that ill will.

In the comments that follow, I would like to examine Japan’s reaction to September 11th, what it has done, what it has not done,

outstanding issues Tokyo has with regional governments, and questions they pose for U.S. policy in the region.

As was pointed out, Japan’s response to the terrorist attacks on

the World Trade Center and the Pentagon was unprecedented.

Prime Minister Koizumi cobbled together a very impressive response, a seven-point package that consisted of military support,

diplomatic, financial, security, economic measures, humanitarian

aid, in an unprecedented manner. I think the speed and deftness

of Mr. Koizumi’s response was stunning. In fact, as Admiral Dennis

Blair, Commander in Chief of the Pacific Command pointed out, it

was magnificent.

I think at the same time, however, there were some worries that

perhaps Mr. Koizumi had gone a bit too far and would be unable

to deliver and yet he confounded the critics and the skeptics in fact

by shepherding through the package of legislation the Japanese

Diet last month.

I think there are several reasons for this unprecedented response. First, of course, are the memories of the Gulf War themselves. I think people on both sides, supporters of the Alliance in

both Tokyo and Washington, were extremely concerned about a

repetition of those events and they worked behind the scenes in

both capitals to ensure that there were no miscommunications and

no confusion. The process was facilitated by the efforts of Japanese

governments that have implemented legal and institutional

changes since 1991 to ensure that Tokyo would not be caught offguard again.

Then there is the matter of personality. Mr. Koizumi, who deserves a great deal of credit, has shown the right instincts, he has

been a long-time supporter of the U.S.-Japan alliance, he has established a personal rapport with President Bush and made it a

point of not only acting as a good ally but being seen as a good ally.

I think his response is even more important and more remarkable given the chaos that has descended upon Japan’s Foreign Ministry in recent months. I think we should be careful and certainly

pay attention to the chaos that seems to be reigning in that organization at this particular moment.

20

Now, all of that said, and mindful of your admonishment to give

credit where credit is due, I am still a bit concerned about a couple

of particular problems. The first is about the depth of public support for the coalition. There is indeed public support in Japan for

the fight against terrorism. A recent poll shows 66 percent of people surveyed support some degree U.S. military retaliation, but

only 8 percent support Japan’s military cooperation.

The danger here is that we have to be careful as to how far we

can assume that that support exists. I think that it is wide, but

perhaps not very deep. I think that partly it is also a product of

the deep-rooted pacifism that occurs and is found on both sides of

the aisle, both in the opposition and within the Japanese government. I think many people worry that ties to the United States are

a potentially entangling alliance and there is a danger that Japanese support for the United States campaign could evaporate if

Japan itself becomes a target.

I think in this situation it is extremely important that the U.S.

not be seen as pushing Japan to move too far too fast on the defense front. There is no consensus for bold steps toward what the

Japanese call normalcy and I think here the Administration deserves credit. It has repeated at every opportunity that U.S. preferences notwithstanding this Administration will support whatever

the Japanese people decide to do.

The second area of concern concerns economic policy. Since Dr.

Bergsten has covered this, I would say I cannot disagree in the

least. However, I am probably a bit more skeptical even than him

about Japan’s ability to act in a timely fashion.

More importantly, or just as important, I am also worried about

the potential effects of United States attempts to push Japan to

take action. I worry that the Japanese will see this as ingratitude

on the part of the U.S. after all that Japan has done on behalf of

the coalition.

I think we have already seen a sense of that when Trade Representative Zoellick made his comments about Japanese leadership

for trade policy prior to the Doha round a couple of weeks ago.

That seemed to have been the predominant response by Japanese

I spoke to after that speech.

Economic reform depends primarily, of course, on the prime minister’s will and I sense that he is determined to bring about change.

Unfortunately, I am not precisely sure what that change consists

of and I have fears that the prime minister does not either. But

even if he is determined to bring about change, that is not sufficient. The Japanese people will have to support real reform and

after a decade of stagnation and scandals, the public says it wants

change.

Dig a little bit deeper, however, and there are questions. A number of surveys show that there has been increasing doubts and ambivalence about market oriented reform in Japan. I think, in short,

the prime minister’s stratospheric support levels notwithstanding,

public support for a hard hitting plan is open to question and I

think that clearly the costs involved in the bank holiday that Dr.

Bergsten mentioned or even structural reform and the effect that

would follow from that would probably even further diminish public

support.

21

In other words, patience is going to be a virtue and it will be a

necessity. Hopefully, Japan’s long-suffering citizens are ready for

the wait. The U.S. must be patient as well. There will be no quick

fixes and Washington must be prepared for glacial progress on economic issues and any other contentious issues on the bilateral

agenda.

Now let me move quickly to other problems in Northeast Asia

and Japan’s views of them.

An important aspect of September 11th is the way that it has

shifted the diplomatic momentum in the region and I think that

Mr. Koizumi has been the chief beneficiary of this new dynamic.

Calls for action on the part of the United States have given Japan

and the Koizumi government the cover they need to make controversial decisions about security policies.

I think to his credit the prime minister has responded well. His

desire to act as a good ally to the United States has been matched

by unprecedented diplomatic efforts to ally concerns of Japan’s

neighbors.

All of this year, Japan’s relations with its two most important

neighbors, China and South Korea, have been troubled. There have

been trade disputes, economic disputes, fishing disputes, disputes

over history textbooks, disputes over the prime minister’s trip to

the Yasakuni shrine. They have virtually paralyzed diplomatic relations between Tokyo and Beijing and seem to be unraveling much

of the progress that has been made in the last few years between

Seoul and Tokyo.

All of that changed on September 11th. Complaints and objections by Japan’s neighbors became less important in the face of demands from its key ally. Neither China nor South Korea wanted

to be seen as blocking U.S. efforts to build a coalition against terrorism and I think that simple fact overcame resistance in both

Seoul and Beijing to Tokyo’s overtures to resume more normal relations.

I think it is extremely difficult to appreciate the anger and hurt

that many Koreans feel toward Japan right now. Not only is there

pain over the Japanese occupation of Korea, but there is a more recent betrayal as well.

President Kim Dae-jung made a courageous outreach to his Japanese counterpart in 1998 and the two men signed a historic agreement to put the past behind them. This year’s controversies have

raised basic questions about Japan’s commitment to that agreement. This antagonism is a critical feature of Northeast Asia diplomacy. Korean mistrust of Japan has intensified and, moreover, Koreans are asking the United States to get involved. They see the

U.S. as encouraging Japanese efforts to assume a larger role in regional security affairs and they want us to nudge Japan to do the

right thing.

Now to look ahead very briefly.

First, the Korean Peninsula is in transition. I think the process

will take years, but unification is somewhere down the line. When

that occurs, there will be a fundamental rethinking of Northeast

Asia security arrangements and the U.S. presence will be a basic

element of that debate.

22

The United States, Japan and South Korea are natural allies

with shared values, a half century of cooperation and similar social,

political and economic systems, but tensions between Tokyo and

Seoul threaten to undermine any long-term security agreement for

the region. A unified Korea that leans toward China would be a

shock to Japan.

Turning to Russia, Japan has made little progress in its attempts

to normalize relations with Russia and the principal stumbling

block has been the northern territories, the islands seized by the

Soviet Union in the aftermath of World War II. As long as that

continues to act as a bar to any attempt to normalize relations,

there will still be a large gap in the Northeast Asian regional dynamic.

And then there is China. I do believe that relations between the

two countries will become more contentious in the years ahead. I

do not anticipate military tensions, but Japanese defense planners

have become more blunt about the potential threat posed by China.

Most briefly China’s rise goes to the heart of national identity and

as China returns to the world stage, it threatens to eclipse Japan.

I think we cannot understand how significant that is and it is an

issue that perhaps we can discuss in some detail later.

Nevertheless, in sum, Japan seems stuck while other nations in

Northeast Asia are moving forward in their relationships. Each of

the regional governments is developing new political and economic

ties and that dynamic creates momentum of its own. Japan, it

seems to me, is left out. I am concerned about the long-term consequences of this situation and worry about the response it could

create in Japan.

Now, finally, challenges for the United States. I think Japan

faces real tests in the future. The magnitude of the challenges will

strain the country’s decision makers and its allies and friends. The

United States has to understand the pressures that the Tokyo government is under and help deal with them. On the economic front,

that means prodding the Japanese to reform, but without the hectoring that has so frequently characterized bilateral dialogue.

On the security front, it means accepting the limits imposed by

Japan’s constitution and resisting the impulse to push Tokyo farther than the Japanese people are willing to go. We have performed well so far, but pressures will mount in the future.

I think it is important that the United States work with Japan

to pursue trilateral dialogue. With China, Japan and the United

States need to help ease Chinese concerns about Japan’s role in the

region and the mission of the U.S.-Japan alliance. Intelligence

sharing and coordination of anti-terrorism efforts that have begun

could provide a foundation for further cooperation.

A similar effort is already underway in South Korea in the trilateral coordinating and oversight group. I think, however, the

agenda must be broader and we must go much further. The depth

of Korean anger toward Japan that has been demonstrated in recent months reveals that building better relations between the two

countries must be broad based and include as wide a cross section

of the two societies as possible.

The U.S. has to encourage both governments to work together to

overcome the past. Ultimately, despite our desire to stay out of this

23

dispute, the U.S. is involved. Both countries are allies and we want

to have good relations if we are realize our policy objectives in this

region.

I think an essential element of this is the Track 2 process that

my organization, Pacific Forum CSIS has been pushing in East

Asia. I have been very privileged to work with both Mr. Cha and

Ms. Glaser on a number of Track 2 initiatives and I look forward

to working with them in the future.

I think these meetings have played an important role in facilitating dialogue in various countries of the region in helping moving

ideas from the formative stage to the official level.

Finally, I think the goal is assuaging fears of Japanese intentions

among its neighbors and proving that talk of peace is not cover for

more calculated strategies. At the same time, we must assure the

Japanese of U.S. support as it goes through a period of wrenching

adjustment. As always, patience will be critical, as will perseverance. It promises to be a frustrating process.

Mr. Chairman, Members of the Committee, thank you for giving

me this opportunity to rush through my opinions and to address

you from Honolulu on this sunny morning.

Thank you.

[The prepared statement of Mr. Glosserman follows:]

PREPARED STATEMENT OF BRAD GLOSSERMAN, DIRECTOR OF RESEARCH, PACIFIC

FORUM, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES

Chairman Leach, distinguished committee members, it is an honor and a privilege

to appear before you today, courtesy of modern telecommunications technology, to

discuss Northeast Asia in the wake of the Sept. 11 terrorist attacks. For many

Americans, it seems like the world became a different place after those vicious and

horrific attacks. While the United States may seem more vulnerable than ever before, it is vital that we recognize that history did not begin anew on that fateful

day. In Northeast Asia in particular, old animosities and tensions persist. If anything, the aftermath of Sept. 11 has the potential to sharpen that ill will. The economic impact of the attacks creates new urgency for Japan to get its economic house

in order. While there are more distinguished panelists here to comment on that particular problem, I am not optimistic. Even in the best of scenarios, recovery will take

several years and will require difficult and courageous choices. I am skeptical of the

Japanese government’s ability to do just that.

In the comments that follow, I would like to examine Japan’s reaction to the Sept.

11 attacks, both what it has and hasn’t done, the outstanding issues Tokyo has with

regional governments, and the questions they pose for U.S. policy in the region.

JAPAN’S RESPONSE TO SEPT. 11

Japan responded to the terrorist attacks on the World Trade Center and the Pentagon with unprecedented speed. Upon hearing of the strikes, Prime Minister

Koizumi Junichiro condemned the attacks, pledged $10 million in aid and said he

would stand beside President Bush when the U.S. retaliated. Within a week, the

Japanese government had cobbled together a seven-point program to respond to the

crisis. It included measures allowing the Self-Defense Forces to provide logistical

support to the U.S. military in the event of a retaliatory strike; strengthening security measures at important facilities in Japan; dispatching Japanese ships to gather

information; strengthening international cooperation over immigration control; provision of humanitarian and economic aid to affected countries, including emergency

assistance to Pakistan and India; assisting refugees fleeing areas that might be hit

by U.S. retaliation; and cooperation with other countries to ensure stability in the

international economic system. Pursuant to that plan, Japan provided $40 million

in emergency assistance to Pakistan, and dispatched envoys to Iran and Pakistan

to help build support for the U.S.-led coalition against terrorism.

In addition, the Japanese government announced that it would send warships to

collect intelligence in the Indian Ocean and would provide support for U.S. vessels

heading for battle stations. The Prime Minister also promised to push enabling legVerDate 11-MAY-2000 16:20 Jan 24, 2002 Jkt 076190 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 F:\WORK\EAP\111501\76190 HINTREL1 PsN: HINTREL1
24

islation through the Japanese Diet that would allow the government to implement

that package in its entirety

Nearly two weeks after the attacks, Mr. Koizumi went to the United States to

meet President Bush and pay his respects to the victims. Some advisers were concerned about the delay; the Prime Minister was one of the last U.S. allies to visit

Washington and offer support to the U.S. Nonetheless, his meeting with President

Bush went extremely well. Mr. Koizumi said, ‘‘we Japanese firmly stand behind the

United States to fight terrorism.’’ To emphasize the point, he spoke in English. In

a statement designed to banish the ghosts of the Gulf War, the Prime Minister was

explicit: ‘‘It will no longer hold that the Self-Defense Forces should not be sent to

danger spots. There is no such thing as a safe place.’’

The speed and deftness of Mr. Koizumi’s response were stunning. Adm. Dennis

Blair, commander in chief of the Pacific Command, called it ‘‘magnificent.’’ But there

were also worries that the Prime Minister would prove unable to deliver on his

promises. There is powerful opposition in Japan to high-profile action in support of

the U.S.-led coalition, or any moves that might entail a military response. Many in

Japan are acutely sensitive to anything that could undermine Article 9 of the Japanese Constitution, the famous ‘‘no war’’ clause. That resistance comes not only from

the ‘‘official’’ opposition (those parties outside of the ruling three-party coalition that

is made up of the Liberal Democratic Party (LDP), the Conservative Party and New

Komei), but also from powerful elements within the coalition itself.

And yet, Mr. Koizumi delivered. The Japanese Diet last month passed legislation

that allows the government to do all that it has pledged. Japan watchers, worried

about a repeat of Tokyo’s response to the Gulf War, were dumbstruck.

There are several reasons for this unprecedented response. The first is the Gulf

War fiasco itself. That memory shaped the reactions of supporters of the alliance

in both Tokyo and Washington. Few administrations have had as many well-connected and knowledgeable Japan hands as this one. There are close personal ties

between those individuals and Mr. Koizumi’s team in Tokyo. They have worked behind the scenes in both capitals to ensure that there was no missed communications

and no confusion. That process was facilitated by the efforts of Japanese governments that have implemented legal and institutional changes since 1991 to ensure

that Tokyo is not caught off-guard again.

Then there is the matter of personalities. Mr. Koizumi has shown the right instincts. He is a long-time supporter of the U.S.-Japan alliance. He has established

a personal rapport with President Bush and understands the importance not only

of being a loyal ally, but also of being seen as a loyal ally. Both the U.S. and Japan

are fortunate to have him in office in these trying times.

Mr. Koizumi’s performance is even more remarkable given the disarray and chaos

that has descended upon Japan’s Ministry of Foreign Affairs. There is internecine

warfare between ministry bureaucrats and Foreign Minister Tanaka Makiko. While

the events themselves sound like farce, the result is deadly serious: The Foreign

Ministry has been marginalized at a critical time. Given the complexities of Ms.

Tanaka’s relationship to the Prime Minister and the signals that would be sent by

her dismissal, this situation may continue for some time. It is important that U.S.

policymakers recognize the constraints that Japan is operating under when its Foreign Ministry is seemingly paralyzed.

CLOUDS ON THE HORIZON

That said, and I don’t mean to be ungrateful, there are still some serious problems ahead. The first concerns popular support for the coalition. There is public support in Japan for the fight against terrorism. A recent poll shows 66 percent of people surveyed support to some degree U.S. military retaliation for the terrorist attacks. I am not sure how deep that support goes, however, since only 8 percent are

in favor of Japanese military cooperation. Japan’s response to Sept. 11 has many

roots, but it is often viewed through the prism of the U.S.-Japan relationship. That

is, after all, what the Gulf War fears are about. Of course, some people, Mr. Koizumi

among them, understand that terrorism is a threat to Japan’s national interests.

Many others, however, worry that ties to the U.S. are a potentially ‘‘entangling alliance.’’ There is a danger that Japanese support for the U.S. campaign could evaporate if Japan itself becomes a target.

That provides the context for some of Mr. Koizumi’s comments after Sept. 11.

While showing his support for the U.S., he was careful to insure that there would

be no misunderstanding about what Japan would do for its ally. Mr. Koizumi made

it clear that Japan would be bound by its constitutional limits. According to the

Prime Minister, ‘‘we are making preparations for a new law that will enable Japan

25

to make all possible contributions on the condition that they do not require the use

of force.’’

In this situation, it is extremely important that the U.S. not be seen as ‘‘pushing’’

Japan to move too far, too fast on the defense front. There is no consensus for bold

steps toward what the Japanese call ‘‘normalcy.’’ Here too, the administration deserves credit: It has repeated at every opportunity that, U.S. preferences notwithstanding, the administration will support whatever the Japanese people decide.

The second area of concern is in economic policy. Since other panelists are far

more capable of commenting than I on this topic, I will be brief.

The U.S. economy was slowing even before the Sept. 11 attacks. The strike at the

heart of the U.S. financial industry and the blow to the nation’s confidence, as well

as that of consumers, will magnify recessionary pressures. The world needs Japanese growth now more than ever. I take heart from the comments of LDP Secretary

General Yamasaki Taku, who has noted that revitalizing the economy is as important as the terrorism bill in terms of global welfare in the wake of the Sept. 11 attacks. ‘‘Japan’s role in preventing a global economic slide is as important as dispatching the SDF overseas,’’ he has said. The Japanese government has promised

to ensure stability: immediately after the attack, the Bank of Japan, the United

States Federal Reserve and the European Central Bank pumped extra liquidity into

markets and worked together to ensure financial stability and security. That is not

going to be enough.

The world economy needs a boost—it needs Japan to regain its footing and to become an engine of growth. There is little likelihood of that in the near future. The

Bank of Japan has revised its forecast for 2001 from 0.8 percent growth to negative

1 percent. It also expects negative growth next year. Worse, it expects deflation of

about 0.8 percent over those two years. In September, industrial production registered the largest decline in 26 years and has declined for three consecutive quarters. Unemployment hit a record high 5.3 percent with 3.57 million people officially

unemployed. However, Japan’s Ministry of Public Management has conceded that

the real unemployment rate may be as high as 10.4 percent, or more than twice

the official figure.

At this point, the outlook for Mr. Koizumi is grim. The Prime Minister had promised to end the government’s reliance on massive public works spending to try to

stimulate the economy, which coincidentally provides money for his party’s traditional constituencies. One of his few concrete electoral pledges was a cap on government spending at 30 trillion yen. The terrorist attacks make such restraint look unlikely as the call for stimulation comes from virtually every quarter.

Moreover, reform as envisioned by the prime minister—or at least as many think

it would be envisioned—would necessitate restructuring, including the closure of unprofitable businesses and inefficient public sector organizations. In other words,

there would be significantly more unemployment. That is unlikely after Sept. 11.

There is rising concern about Japan’s unwillingness to tackle its bad debt problem, which threatens to overwhelm its banking sectors. The administration is rightfully concerned that vulnerability in Japan’s financial system could become a global

weakness as well. But I worry that complaints about Japanese inaction will be seen

as ingratitude on the part of the U.S. ‘‘after all that Japan has done on behalf of

the coalition.’’ When U.S. Trade Representative Robert Zoellick voiced his mounting

frustrations three weeks ago and blasted Japanese policy in the lead up to the Doha

trade talks that was one of the main responses. The U.S. needs to be concerned

about this kind of perceived tradeoff between security and economic policy. It is certainly part of the Japanese domestic political calculus.

POLITICS IN JAPAN

While Japanese politics can be esoteric—or numbing—it is important to understand Mr. Koizumi’s position. He is a weak Prime Minister; all Japanese Prime ministers are. But he is perhaps weaker than usual because he has relied on public support to claim the top rung. That is virtually unheard of in Japan.

The Prime Minister presents himself as a reformer, and revels in his image as

a rebel, but it is unclear what he really believes in. He has spoken passionately

about dismantling the postal savings system and has supported limits on government spending (which would end the pork barrel politics that has been the foundation of LDP rule), but the details of his reform agenda have been hard to find. Part

of that is politics: The Prime Minister has not gotten specific to avoid antagonizing

supporters who might be adversely affected by his plans. Others question whether

Mr. Koizumi really believes in much; he is said to be guided by instinct and has

little inclination for the nitty gritty and the down and dirty of Japanese politics.

26

But real ‘‘reform’’ means fighting the vested interests that have been the mainstays of LDP support. In other words, the LDP has been riding the coattails of the

man who is committed to undermining its existence. The LDP old guard is well

aware of this irony, and has muted its criticism to exploit Mr. Koizumi’s popular

appeal. They are now showing their gratitude by opposing his agenda; having used

the prime minister to their advantage in last July’s Upper House elections, they

have dispensed with the niceties and are getting down to business.

The bottom line is that Mr. Koizumi is now going to be tested because the real

opposition to his program is emerging—and that opposition comes from within his

own party. Mr. Koizumi will have to genuinely believe in reform and be willing to

fight for it if he is to prevail.

The Prime Minister’s determination is necessary, but it is not sufficient to change

Japan. To do that, the Japanese people have to support real reform. After a decade

of stagnation and scandals, and a year of hapless Prime Minister Mori Yoshiro, the

Japanese public says it wants change.

The readiness to actually stomach the pain that change will bring is another matter, however. Survey data from the Dentsu Institute for Human Studies has shown

increasing ambivalence about market-oriented reforms in Japan in the latter half

of the ’90s as calls for change have been matched by rising levels of unemployment.

Recent polls show similar doubts about the wisdom of reform. In short, the Prime

Minister’s stratospheric support levels notwithstanding, public support for a hardhitting plan is open to question.

Complicating the picture is the likelihood of a realignment of domestic politics in

the future. Just as parts of Mr. Koizumi’s reform agenda alienate members of his

own party, they appeal to members of the opposition—the Liberal Party and the

Democratic Party of Japan. Many of these politicians were members of the LDP and

are eager to return to power; their reformist inclinations could overcome whatever

animosity still lingers as a result of their leaving the party in the first place. The

Democratic Party is especially vulnerable to a split, since it retains ties to the labor

unions (half of its winners in the last election in July were union representatives),

which are likely to bear the brunt of reform. The behind-the-scenes maneuvers to

line up support will intensify as the stakes grow.

The many uncertainties and the one real certainty (spirited opposition from the

LDP old guard) guarantee that the reform process will be slow. The Prime Minister

and his team are talking about two- to three-year time horizons.

In other words, patience is going to be more than a virtue—it will be a necessity.

Hopefully, Japan’s long-suffering citizens are ready for the wait. The U.S. must be

patient too. There will be no quick fixes and Washington must be prepared for glacial progress on economic issues, or any other contentious items on the bilateral

agenda. The opposition (both within his party and outside) will use every issue they

can to beat the Prime Minister and the constellation of security concerns, including

constitutional reform, is a big stick. The stakes are high, which means the fighting

should be vicious. The U.S. should be ready to support its ally no matter what it

chooses to do, but Washington cannot allow itself to be drawn into the fray.

KOREA PROBLEMS

One important aspect of 9–11 is the way that it has shifted the diplomatic momentum in Northeast Asia: Mr. Koizumi has been the chief beneficiary of the new

dynamic in the region. The calls for action on behalf of its American ally have given

Japan and the Koizumi government the cover they need to make controversial decisions on security policies. To his credit, the Prime Minister has responded well: his

desire to act as a good ally to the United States has been matched by unprecedented

diplomatic efforts to allay the concerns of Japan’s neighbors.

Japan’s relations with its two most important neighbors, China and South Korea,

have been troubled since the spring. There were many sources of friction: a controversy over middle-school history textbooks, trade disputes, fishing disputes, and

the prime minister’s trip to the Yasukuni Shrine in August. The difficulties virtually

paralyzed diplomatic relations between Tokyo and Beijing, while relations between

Seoul and Tokyo seem to be unraveling. Both governments had rebuffed the Prime

Minister’s attempts to meet and explain his positions. The situation had reached the

point where Mr. Koizumi was even prepared to skip the annual opening session of

the United Nations General Assembly, preferring instead to go to Southeast Asia

where he would have received a warmer welcome.

All that changed on Sept. 11. Complaints and objections by Japan’s neighbors became less important in the face of demands from its key ally. Equally important,

neither China nor South Korea wanted to be seen as blocking U.S. efforts to build

27

a coalition against terrorism. That simple fact overcame resistance in both Seoul

and Beijing to Tokyo’s overtures to resume more normal relations.

Of course, each country has its own concerns. In Beijing, the chief focus was the

Asia Pacific Economic Cooperation Leaders’ Meeting that was held in Shanghai last

month. China wanted the meeting to go well and tense relations between Tokyo and

Beijing would have undermined its success. ‘‘Necessity’’ gave the Chinese leadership

the excuse it needed to break the diplomatic logjam with Japan. And it got some

valuable items in return when Mr. Koizumi visited the Marco Polo Bridge, a site

that is rich in symbolism, and he issued apologies for Japanese wartime behavior

that were unlikely in other circumstances.

South Korean concerns were more difficult to assuage, as was made abundantly

clear by the protests that greeted the Prime Minister during his one-day visit to

Seoul last month. There too Mr. Koizumi visited sites that commemorated Japan’s

occupation and he made a ‘‘heartfelt apology’’ and expressed remorse for the ‘‘pain

and damage Korean people suffered during Japan’s colonial occupation.’’ Korean

President Kim Dae-jung welcomed the apology, but asked the Prime Minister to

match his words with deeds. On the sensitive issue of Japan’s efforts to assist the

U.S. coalition against terrorism, President Kim asked Mr. Koizumi to make sure the

activities would remain within the boundaries of the Japanese Peace Constitution.

Indeed, by agreeing to meet with the Prime Minister and resume relations, Mr. Kim

ensures that his country has some influence in Japan’s national debate.

It is difficult to appreciate the anger and hurt that Koreans feel toward Japan.

Not only is there pain over the Japanese occupation of Korea, but there is a more

recent betrayal as well. President Kim made a courageous offer to then Prime Minister Obuchi Keizo in 1998 when the two men signed a historic agreement to put

the past behind them. The controversies over middle school textbooks and the Prime

Minister’s visit to Yasukuni Shrine have raised basic questions about Japan’s commitment to that agreement.

This antagonism is a critical feature of Northeast Asian diplomacy. Korean mistrust of Japan has intensified. Moreover, Koreans are asking the U.S. to get involved. They see the U.S. as encouraging Japanese efforts to assume a larger role

in regional security affairs. As a result, they want us to nudge Japan ‘‘to do the

right thing.’’

Mr. Koizumi has made the right gestures. His visits and his speeches have been

unprecedented. But words will no longer suffice. He must translate them into deeds

if there is to be any real progress in relations between the two countries—and

progress is essential.

TROUBLES AHEAD?

The Korean Peninsula is in transition. The process will take years, probably decades, but unification of the two Koreas is inevitable. When that occurs, there will

be a fundamental rethinking of Northeast Asian security arrangements, and the

U.S. presence will be a basic element of the debate. The United States, Japan and

South Korea are natural allies, with shared values, a half century of cooperation,

and similar social, political and economic systems. Tensions between Tokyo and

Seoul threaten to undermine any long-term security agreement for the region. A

unified Korea that leans toward China would be a shock to Japan.

Japan has made little progress in attempts to normalize relations with Russia.

They continue to be held up by the dispute over Northern Territories, islands seized

by Russia after World War II. Tokyo thought it had struck a deal with former President Boris Yeltsin that would have resolved the problem by 2000. Unfortunately,

President Vladimir Putin has shown no willingness to follow up on those negotiations and has backed off from any reputed deal. Japan’s insistence on putting the

Northern Territories dispute at the heart of relations with Russia ensures that there

will be no substantive progress in the relationship. It also guarantees that there will

be disputes with other nations, such as occurred Russia granted fishing rights

around the islands to Korean fishing boats, and Japan protested.

And then there is China. I believe that relations between the two countries will

become more contentious in the years ahead. I do not anticipate military tensions,

although Japanese defense planners have become more blunt about the potential

threat posed by China. Rather, China’s rise goes to the heart of Japanese national

identity. Japan has prided itself as the leading Asian nation, and has offered itself

as a bridge between East and West, a sometimes spokesperson for Asian interests

at gatherings such as the G–8. It has led the way in economic development; its

model has been copied throughout the region.

China’s return to the world stage threatens to eclipse Japan. It dwarfs the country in sheer size and population and its nuclear arsenal distinguishes its military

28

capabilities. China has a permanent seat on the United Nations Security Council,

a position to which Japan aspires. And Japan’s own Ministry of Economics, Trade

and Industry acknowledged in a white paper issued earlier this year that ‘‘the flying

geese model’’ of industrial development, that posited Japan as the leading goose,

was no longer applicable. In every sense China is a country of growth and possibilities; Japan’s most recent legacy is ‘‘the lost decade.’’ (I realize this is an overly rosy

picture of China’s future, but the general point is valid.)

In brief, Japan seems ‘‘stuck’’ while other countries in Northeast are moving forward in their relationships. Each of the regional governments is developing new political and economic ties, and that dynamic creates momentum of its own. Japan,

it seems, is left out. I am concerned about the long-term consequences of this situation and worry about the response it could create in Japan.

CHALLENGES FOR THE U.S.

Japan faces real tests in the future. The magnitude of the challenges will strain

the country’s decision-makers and its ally and friends. The U.S. has to understand

the pressures that the Tokyo government is under—no matter who is in charge—

and help deal with them. On the economic front, that means prodding the Japanese

to reform, but without the hectoring that has so frequently characterized bilateral

dialogue. On the security front, it means accepting the limits imposed by the Japanese Constitution and resisting the impulse to push Tokyo farther than the Japanese people are willing to go. We have performed well so far, but pressures will

mount in the future.

It will be critically important to push for a coordinated dialogue with Japan and

its neighbors. A U.S.-Japan-China trilateral dialogue can help ease China’s concerns

about Japan’s role in the region and the mission of the U.S.-Japan alliance. Intelligence sharing and coordination of anti-terrorism efforts could provide a foundation

for more cooperation in the future.

A similar sort of effort is already underway with South Korea in the Trilateral

Coordination and Oversight Group (TICOG) that deals with policy toward North

Korea. But the agenda with South Korea must be wider since Japan’s relations with

Korea should be more intimate than those Tokyo has with China. The depth of Korean anger toward Japan that has been demonstrated in recent months reveals that

building better relations between the two countries must be broad based and include

as wide a cross-section of the two societies as possible. One positive element is the

decision to have the two countries co-host the 2002 soccer World Cup. That will

force the two countries to work together and force a degree of interaction that

should help take some of the wrinkles out of relationship.

The U.S. has to encourage the two governments to work together to overcome the

past. Ultimately, despite our desire to stay out of this dispute, the U.S. is involved:

Both countries are allies and we them to have good relations if we are to realize

our own policy objectives in the region.

An essential element in this process is track two dialogue. My organization, Pacific Forum CSIS, is a key player in the track two process in East Asia. These meetings have played an important role in facilitating dialogue among various countries

of the region and helping move ideas from the formative stage to the official level.

The goal is assuaging fears of Japanese intentions among its neighbors and proving that talk of peace is not cover for more calculated strategies. At the same time,

we must assure the Japanese of U.S. support as it goes through a period of wrenching adjustment. As always, patience will be critical. As will perseverance. It promises to be a frustrating process.

Mr. Chairman, members of the committee, thanks you for giving me the opportunity to address these critical questions and for taking the time to hear my

thoughts. I would be happy to address any questions you might have on these or

any other issues.

Mr. LEACH. Well, thank you, Mr. Glosserman. That was an impressive testimony.

Next up is Mr. Victor Cha, who is a representative of Georgetown

University.

Welcome, Mr. Cha.

29

STATEMENT OF VICTOR CHA, ASSOCIATE PROFESSOR, DEPARTMENT OF GOVERNMENT AND SCHOOL OF FOREIGN

SERVICE, GEORGETOWN UNIVERSITY

Mr. CHA. Thank you. Thank you, Mr. Chairman and Members of

the Committee, for inviting me here today to testify. I am happy

to speak to you on this topic of key trends on the Korean Peninsula.

It seems to me that the most efficient way at least of addressing

this question is to ask how much has changed in the way the

United States looks at Korea in the aftermath of two watershed

events: the terrorist attacks of September 11th and then prior to

this, of course, the June 2000 summit, the meeting of the two Koreas.

With regard to the first of these tasks, I have to say it is not

really easy. The immediacy of the events have made it very difficult to draw any definitive conclusions about the impact of September 11th on Korea. Nevertheless, I think there are certainly

preliminary observations that can be made.

First, the terrorist attacks and their aftermath have really validated the strength of America’s alliances in Asia, in my opinion.

Brad has already spoken to Japan. I would characterize South

Korean efforts as proactive and positive thus far. Seoul has strongly condemned the attacks and pledged full support for the United

States. If I had a dime for every South Korean I have met in a public and private setting who have expressed their sympathies for

America as a result of 9/11, I guess I would not be an underpaid

academic.

Subsequently, Seoul has offered 450 non-combatant troops for

support of the war effort and responded positively to United States

requests for liaison officers and medical support.

Having said this, I think there is an internal discussion taking

place now in Seoul about whether the South Koreans should provide combat troops if the United States were to request this.

As you are all probably aware, given the nature of what the

South Korean military prepares for on the Korean Peninsula, ROK

special warfare units have training well suited to mountainous

areas.

I have no doubt that if the United States were to request this,

it would be a contentious issue in the Korean domestic political climate that it is now in as we enter an election year in South Korea,

but, in the end, I think that the South Koreans would respond positively.

The primary reason for this, and it may sound obvious, but I

think it is useful to state the obvious on the record sometimes is

that alliance commitments such as that between the U.S. and the

ROK are treaty commitments that flow both ways and as an alliance like the South Korean alliance remakes itself in the post-Cold

War and more out of area common interests like anti-terrorism become a part of what the alliance stands for, then it is incumbent

on our South Korean allies to help if they were requested to do so.

With regard to North Korea and the events of 9/11, I think all

we can say here is that the events do provide the United States

with a potential window on DPRK intentions. The debate continues

in the academic, the intelligence and the policy communities about

30

the extent to which North Korea’s recent smile diplomacy over the

past 18 months is driven by a true change in North Korean intentions, a transformation toward reform and integration, or whether

these are simply mere tactical changes for the purpose of regime

survival.

Supporters of the sunshine policy will tell you that they buy the

transformation thesis. I, frankly, am more skeptical, but at the

same time if North Korea is truly bent on true change, then the

events of 9/11 really provide an opportunity for at least them to

show their true intent on at least this particular issue.

One positive sign in this vein has been the recent report that the

DPRK will sign two U.N. conventions on terrorism but there clearly are more tangible things that they can do in support of this effort.

Let me move on to the events of June 2000. I think while we

have had 2 months since 9/11 and that does not offer us as much

time to go beyond initial observations. We have had 17 months

since the inter-Korean summit of June 2000 and that affords us

some perspective on how much has changed and how much has

stayed the same. And I have three sets of comments here. The first

is on the North Korean threat.

My basic point here is that sort of impassioned debates about

whether there is or is not a real North Korean threat after June

2000 to me are not useful debates. Instead, what is more useful is

an objective assessment of how much the North Korean threat has

changed over time. And I would argue that the nature of the stress

has changed along two lines.

The first we are all familiar with and that is the proliferation

threat, so I will not go into that in depth here.

But the second, and this is the thing that is most concerning to

me, when people ask me what worries me most about hostility on

the Korean Peninsula, for me it is not invasion because I think

that U.S.–ROK capabilities are more than adequate to credibly

deter and defend a potential North Korean invasion.

Instead, the thing that really worries me are limited acts of belligerence on the part of the north for the purpose of coercive bargaining. In the 1990s, what the North Koreans have undertaken is

a strategy of limited acts of violence to upset the status quo and

these are usually not enough to start a war, but they are certainly

enough to rattle everyone’s cages. And the purpose of this strategy

is to basically renegotiate a new status quo to their advantage.

They did this is the West Sea incident, they did this in the JSA

incursions. One could argue they did it with the Taepodong shot

over Japan.

This is a very risky strategy and there is a high danger of escalation, but it is also a very rational strategy. If you have nothing

to lose in the status quo, you are much more likely to leverage it

for other purposes.

The upside for the United States here is that this is inherently

a more difficult threat to deal with. There is no doubt that you still

need a continued baseline of containment to deter the traditional

threat that is posed by a North Korean invasion. But the question

then becomes containment plus what to deal with these other problems of proliferation and coercive bargaining?

31

Is it containment plus isolation, what was practiced during the

Cold War? Containment plus coercion? Or is it the track we are

now on, containment plus engagement?

On unification, how much has the June summit really affected

the prospects of unification? My basic point here is that rhetorically

there is a lot of talk about how this is imminent. Substantively,

there really is not much progress. Indeed, the thing that is most

striking to me about the debate on unification in spite of the June

summit is the growing ambivalence in South Korea with regard to

unification.

This is a function of a number of things I can go into, but basically pragmatism has dominated what was traditionally a normative discourse on unification. And from a U.S. perspective, the

upshot from a U.S. perspective on how we should think about the

future is that traditionally we have always talked about peace solutions on the peninsula that were zero sum in nature. We largely

thought of unification by war, by collapse in which the United

States would eventually be off the peninsula. And I guess what this

debate in Korea now tells us is that we also need to contemplate

other solutions on the peninsula that are non-zero sum in nature,

potentially peaceful coexistence, and we have to sort of think about

what the U.S. role might be in that particular situation.

My final set of comments are on the U.S.–ROK alliance.

I am directing a project at Georgetown right now on the future

of American alliances and to no surprise one of the most successful

alliances in the Cold War was the U.S.–ROK alliance. However you

define it in terms of interoperability, doctrine, combined training,

achievement of objectives, it is one of the most successful. But one

thing that I believe the alliance will need to pay much more attention to relative to the past are the alliance management issues, the

upkeep issues, if you will.

One thing notable with regard to South Korean domestic political

trends is the way that issues with regard to labor, environment

and society have resonated with voters. These traditionally have

very little play in South Korean domestic politics, they have a lot

more now.

And what this really means for the alliance is that issues like

SOFA, land use, live fire artillery, these are increasingly things

that become domestic political issues around which local politicians

can organize. I am not saying that this is the end of domestic support in South Korea for the U.S. On the contrary, for reasons I can

elaborate, I think the Koreans will want U.S. security relations

long into the future, but I am simply saying that there will be more

pressure to deal with these sorts of issues in the alliance today

more than in the past and this is a function of democratic consolidation in Korea more than it is the north-south summit.

So in many ways this is the opposite of the problems we encountered in the U.S.-Japan alliance. The complaint here was often that

there was too much time placed on alliance upkeep issues and not

enough time on tactical clarity. In the U.S.-Korea alliance, you

have a lot of time on tactical clarity and not as much time on the

upkeep issues and I would suggest that the alliance needs to do

more of that.

32

Mr. Chairman, I will conclude my remarks and I thank you

again for the opportunity and I look forward to your questions.

Thank you.

[The prepared statement of Mr. Cha follows:]

PREPARED STATEMENT OF VICTOR CHA, ASSOCIATE PROFESSOR, DEPARTMENT OF

GOVERNMENT AND SCHOOL OF FOREIGN SERVICE, GEORGETOWN UNIVERSITY

Mr. Chairman and members of the Subcommittee, thank you for your kind invitation to testify today. I am honored to have the opportunity to speak before such a

distinguished group on the topic of key trends on the Korean Peninsula.

It seems to me that the most efficient way of approaching today’s topic is to ask

the following question: how much has changed in the way the United States should

view the Korean peninsula in the aftermath of terrorist attacks of September 11,

and prior to this, the watershed June 2000 summit between the two Koreas?

SEPTEMBER 11

The first of these tasks is not easy. The sheer proximity of events makes it difficult to draw any definitive conclusions about the impact of September 11 on Korea.

Nevertheless, certain preliminary observations deserve mentioning. First, the terrorist attacks and their aftermath have validated the strength of America’s friendships in Asia. As the United States prosecutes the war against Al Qaeda and the

Taliban regime in Afghanistan, the allies in Northeast Asia have stood firmly behind American actions. While others on this panel will speak to Japanese efforts,

I would characterize the Republic of Korea’s (ROK) efforts as proactive and positive

thus far. Seoul strongly condemned the terrorist attacks and pledged full support

for US actions. It subsequently has offered 450 non-combat troops (120 medical, 170

sea and 150 air logistics personnel and 10 liaison officers) to support war efforts in

Afghanistan.

Recent discussions in Seoul center on whether the ROK should dispatch combat

troops to the conflict. ROK special warfare units have training well-suited to the

mountainous terrain in Afghanistan. If requested by the U.S. (e.g., at the upcoming

SCM meetings in mid-November), the issue of combat troops might be a domestically contentious one. Such a request would not be unprecedented—ROK combat

forces fought in large numbers with the United States in Vietnam—but the circumstances then differ starkly from today. Whatever trepidations might exist in

Seoul on this issue, it is my estimation that the ROK government would respond

positively. Alliances are bilateral commitments in which responsibilities flow both

ways. As combating global terrorism becomes a part of what the US–ROK alliance

stands for in the 21st century, it is incumbent on our Korean allies to remain steadfast in this effort.

With regard to North Korea, the events of September 11 provide the U.S. with

a potential window on DPRK intentions. A debate rages in the academic, intelligence, and policy community of experts on the extent to which Pyongyang’s ‘‘smile

diplomacy’’ over the past 18 months represent mere tactical changes (i.e., for the

purpose of regime survival), or are symptomatic of a fundamental change in intentions (i.e., toward peaceful integration with the international community). Optimists

and supporters of ROK president Kim’s ‘‘sunshine policy’’ believe the latter motivates North Korea albeit in a slow, halting, and opaque fashion. I am still somewhat

skeptical. But if the North is bent on true change, then September 11 offers a

chance for bold DPRK steps in communicating its intent in at least this regard. Recent reports of the DPRK’s intention to sign the UN convention on suppressing terrorist financing (ROK signed October 2001) are encouraging, but this should be followed by tangible actions

AFTER THE JUNE 2000 SUMMIT

While it is still too early to draw definitive conclusions about the impact of 9–

11 on US-Korea relations, the task is marginally easier with regard to the June

2000 summit. The seventeen months that have passed since this historic event afford us some perspective on how much has changed; how much has remained constant; and how the US should be thinking about the peninsula.

A Critical Time?

For decades prior to June 2000, one could not be accused of overstating the claim

that the military armistice ending the Korean War, the Cold War standoff among

the major powers in the region, and the spectacularly estranged relationship between the two Koreas saw no change since 1953. Then in a space of five years, a

33

1See Choson Ilbo-Korea Gallup and Hankook Ilbo-Media Research polling results reported in

Korea Herald, 19 June 2000 (‘‘Summit talks greatly improve image of Kim Jong-il among South

Koreans’’).

chain of unprecedented events took place. DPRK leader Kim Il-sung died in 1994,

leaving a bankrupt economy to an untested quantity in his son, Kim Jong-il. Famine

and a burgeoning ballistic missile capability raised concerns that the forty-year old

stalemate on the peninsula could be broken by either a DPRK implosion or explosion. The US–DPRK standoff over the North’s nuclear program nearly led to war

in June 1994, only to be averted by the Agreed Framework and a new path of US– DPRK engagement. During this same period, the ROK peaked in its postwar development in 1997 with OECD membership and plummeted only a year later to becoming an IMF bailout recipient. Kim Dae-jung embarked on a new ‘‘sunshine’’ or en- gagement policy with the North. The culmination of this strategy was a historic

summit between the two leaders in Pyongyang in June 2000. Talk of peaceful unification filled the air in Seoul, as well as murmurs about the anachronistic US–ROK

alliance. Polls showed 90 percent of South Koreans having a positive image of North

Korea after the summit. An astounding 53 percent of this population dismissed the

possibility of another DPRK invasion.1

How should the United States think about these changes? Are we closer to unification and an end to the cold war stalemate? Are many of the conventional truisms

we have accepted about the Korean peninsula for so many years suddenly on the

verge of being overturned?

I argue that while the June 2000 summit sparked certain changes on the peninsula, a great deal has remained the same. Moreover, where significant change has

taken place on the peninsula, the nature of it has often been misunderstood or overstated in the public debate. I make this argument by debunking three ‘‘myths’’ that

have emerged in recent re-assessments of conventional security and political thinking. These relate to the nature of the North Korean threat; the unification issue;

and the future of the US–ROK alliance.

Reassessing the North Korean ‘‘threat′′

The June summit gave rise to a debate over how the United States, the ROK, and

Japan should perceive DPRK military capabilities. Pessimists argued that little had

changed as a result of the June summit. The North was improving their capabilities

behind the veil of engagement, and lulling the allies into a false sense of security.

Optimists contended that the North’s forward-deployments near the DMZ were not

offensively-intended, but were part of a defense and deterrence doctrine (e.g. using

artillery to hold Seoul hostage against a US–ROK attack rather than for the purpose of southern invasion).

There are still salient DPRK threats and chances for renewed hostility, but the

nature of the problem has changed along two dimensions: proliferation and bargaining leverage. Regarding the former, the DPRK ballistic missile program since

the early 1980s has produced a range of missile systems, either deployed or tested,

demonstrating progress beyond most expectations. Despite dire material constraints,

the North accomplished this largely through reverse-engineering of SCUD–B missile

technology acquired from the Soviet Union. The August 1998 test flight of the

Taepodong-1 over Japan demonstrated an unexpected leap in IRBM technology (albeit a failed 3-stage payload launch). Although Pyongyang currently adheres to a

self-imposed testing moratorium (until 2003), its history of behavior in this area is

suspect. In defiance of Missile Technology Control Regime (MTCR) norms and often

described as the agent that could single-handedly undermine the entire regime,

North Korea has been the most active producer and provider of SCUD missiles and

missile technology to Iran, Syria and Pakistan; and concerns abound regarding future proliferation of longer-range systems. Mated with the missile program have

been dedicated DPRK efforts at acquiring nuclear weapons capabilities. Deriving

from atomic energy agreements with the Soviet Union in the 1960s, Pyongyang’s nuclear industry was capable of supporting a complete nuclear fuel cycle by the 1980s.

Subsequent reactors (an operational five megawatt reactor and construction of 50

and 200 MW reactors) presaged an annual reprocessed plutonium production capacity that could sustain in excess of 10 nuclear weapons. While these activities remain

frozen and are subject to dismantlement as a result of the 1994 US–DPRK Agreed

Framework, suspicions remain regarding the North’s plutonium reprocessing history, alleged covert activities outside Yongbyon, and possible crude nuclear devices.

Coercive Bargaining

The second subtle but significant change with regard to peninsular security involves a new logic of deterrence. The most worrying contingency for the United

34

2The NLL was unilaterally declared by the United Nations Command after the 1950–53 Korean War, and for the US and ROK, represents the ‘‘de facto’’ maritime border. The DPRK does

not recognize the line and claims as its own the resource and fish-rich disputed waters less than

12 miles away from its western coast (the disputed seas are also located less than 12 miles away

from South Korean-owned islands in the West Sea).

States is no longer all-out invasion, but rather limited acts of belligerence by the

North for the purpose of coercive bargaining. By virtually every calculation of the

military balance on the peninsula today, US–ROK defense capabilities overwhelm

those of the DPRK, rendering nil the probability of a successful second DPRK offensive. Moreover, standing US war plans promise that any DPRK attempt to replay

June 1950 would be met with a decisive counter-offensive aimed at extinguishing

the regime. Hence, US–ROK deterrence and containment clearly deals with the contingency of invasion; what is less clear is how effective the strategy is in dealing

with limited uses of force by the North to coerce better bargaining positions. This

has been the most frequent and consistently threatening behavior by the DPRK

since the end of the cold war. Pyongyang’s modus operandi is to undertake acts of

belligerence that violate the peace and disrupt the status quo, usually highlighting

some grievance the DPRK holds. These ‘‘pinprick’’ acts are usually severe enough

to gain everyone’s attention, but at the same time do not warrant all-out retaliation.

Thus, Washington and Seoul are manipulated into the awkward position of wanting

to punish the North’s misbehavior, but constrained by fears of provoking an unnecessary and costly larger conflict. As a result, they usually issue a token denouncement of the DPRK transgression, but still come to the negotiating table prepared

to make concessions that will reduce tensions.

From Pyongyang’s perspective, the objective of this strategy is not to win militarily but to initiate a coercive bargaining process that eventuates in a negotiation

outcome better than the status quo ex ante. This is a dangerous and de-stabilizing

strategy, but it is the sort of high stakes game that Pyongyang adeptly plays. Two

observations about such a strategy require emphasizing. First, basic containment

postures designed to deter all-out invasion may not be as effective in discouraging

the limited use of force. Second and most important, the resort to force under such

a strategy is rational. Even if objective factors weigh wholly against military success, the incentive to undertake a belligerent act is still rational because of the anticipated benefits of renegotiating a new status quo more in line with one’s interests.

The costs of the current situation outweigh the costs of change.

In this vein, the armed naval altercation on the west coast of the peninsula in

June 1999 offered an ominous precedent. Several North Korean patrol boats transgressed South Korean territorial waters, prompting the ROK Navy to ram the trespassers and an exchange of fire that left 20–30 North Koreans dead. This constituted one of the largest losses of life in North-South altercations since the 1953

armistice, and was a clear demonstration ROK superior naval combat capabilities

and training. What grabbed the headlines was the military clash and related casualties. But few really stopped to ask why the North took such actions, or else assumed

that the regime either underestimated the ROK’s naval capabilities and resolve, or

else acted irrationally. But the most likely possibility was that this North Korean

provocation was designed to extort concessions from a fearful ROK and its foreign

patrons regarding, in this instance, the validity of the Northern Limitation Line

(NLL) maritime boundary between South and North Korea.2 In other such incidents

the North might lob several artillery shells or one chemically-armed short-range

missile fired into the South (and if possible non-American in target). The DPRK cannot win a confrontation, but this act could still be rational in the sense that it would

cause enough chaos to raise incentives on the peninsula to renegotiate a new status

quo possibly more favorable to DPRK interests. Again, such an act would not be

based on a rationale about winning but one of avoiding further loss.

The upshot of this for American security interests is that the ‘‘threat’’ posed by

North Korea is inherently a more complex and problematic one than during the cold

war. While deterrence of a traditional ground invasion is still essential, the more

salient question is what in addition to baseline containment is needed to deal with

these new problems of proliferation and coercive bargaining. Indeed, this is where

the policy debate on North Korea remains undecided. While the current policy emphasizes engagement initiatives layered on top of basic containment strategies to

deal with the proliferation threat, others argue that containment-plus-isolation

which worked during the cold war, should work again, or that coercion (i.e., containment-plus-coercion) is necessary to deal with the proliferation threat.

Whatever one’s preference, the point to be noted is that the June 2000 summit

and its aftermath have not affected the threat assessment. First, the summit had

no direct impact on the proliferation dimension of North Korea. Second, there is no

35

denying the summit’s positive dynamics; nevertheless, the heightened confidence

among South Koreans wholly dismissing the likelihood of conflict on the peninsula

appears to outpace the events themselves. According to the logic laid out above, the

true test of whether this confidence is justified is not a function of warmly-worded

toasts, embraces, or a return visit by Kim Jong-il but the extent to which material

improvements in the North’s situation give it more to lose in coercive bargaining

attempts, thereby rendering the policy unattractive.

The US–ROK Alliance

Across a range of criteria that determine the functional success of a military alliance, the US–ROK alliance has done well. The alliance enabled the stationing of

37000 US troops directly at the point of conflict on the peninsula which provided

the South with an unequivocal symbol of the US defense commitment and deterred

the North with its tripwire presence. The two militaries represent the classic example of an alliance operating under a joint, unitary command (the Combined Forces

Command or CFC) with a common doctrine, as well as with a clear division of combat roles practiced through frequent and extensive joint training. Overall host country support for the alliance has been and continues to be strong. Arguably the US

and ROK have evolved to fit the ideal definition of military allies, far more workable

and efficient than the US-Australia or US-Saudi Arabia alliances and paralleled

only by NATO and the US-Japan alliances. However, the unexpected congeniality

of the North-South summit raised all sorts of speculation about the future of the

US–ROK alliance. If the likelihood of conflict on the peninsula has been eradicated

by this new era of Korean peace (as some suggest), then what is the purpose of the

alliance? Has South Korean tolerance for the burdensome structures of the alliance

and its bases and training ranges waned in direct relation to the euphoria of the

summit? Has the summit created a division of interests on the peninsula with the

South Koreans ‘‘decoupling’’ their peninsular peace from other issues of concern to

the US and Japan? In short, is the alliance increasingly an anachronism of the cold

war?

These are hard questions that the alliance must answer with regard to its future,

but the emphasis here is on ‘‘future.’’ Excited observers draw a immediate causal

link between summit atmospherics and the obsolescence of the alliance. It appeals

to Korean romanticism to think that the US alliance becomes less necessary because

of this bold move by the Koreas, but the fact of the matter is that the alliance is

here to stay as long as the threat remains and perhaps even beyond. The majority

of South Korean security thinkers, including Kim Dae-jung himself, have gone on

record calling for a security relationship with the US even after unification. Such

strategic imperatives do not change easily overnight. Moreover, toasts, warm embraces, and a return visit by Kim Jong-il do not stop ballistic missiles, nuclear posturing, nor heightened tension in the DMZ. To believe that the summit’s platitudes

enable Korea to decouple itself from these larger and substantive security concerns

of Washington and Tokyo would be a grave mistake. In short, while the rhetoric regarding the dispensability of the alliance and complaints about intrusive aspects of

US bases and training might heat up every time there are kind words between the

North and South, the clear-headed among South Korean policy makers will not

trade away the Eighth Army for the positive atmospherics with Pyongyang.

In this regard, there is one phenomenon evident since the summit that Washington and Seoul must guard against. Because Kim Dae Jung has staked his presidency on the success of the sunshine policy, this has created tremendous domesticpolitical pressures to show constant progress in the policy. To avoid unnecessarily

upsetting the North, Seoul has occasionally asked for postponement and/or scaling

down of joint US–ROK military exercises. This may have been an understandable

request regarding the Korean War 50th anniversary celebrations scheduled shortly

after the June 2000 summit, but it is not an acceptable request with regard to military exercises meant to maintain battle readiness. Not only is this dangerous for

USFK, but it actually undermines the South Korean sunshine policy. Engagement

is only credible to the target state when it is undergirded by robust defense capabilities. Once capabilities deteriorate, engagement becomes appeasement.

Second, the argument that the end of the Soviet threat and more immediately the

Korean detente have highlighted troubling disparities in US and ROK security interests on the peninsula is not a particularly novel revelation. American and South

Korean interests are indeed different, but this has always been the case. Historically, ROK expectations regarding the credibility of its American ally’s commitments

have always been local in terms of peninsular security and the zero-sum competition

with the North. On the other hand, the US has always seen the Korea issue refracted through the prism of its larger regional or global strategies. These differences emerged occasionally but they were managed well because the American

36

cold war strategy linked events in the periphery with US-Soviet competition at the

core, thereby causing the regional and local views to converge.

Perhaps the biggest change for the alliance is the increased attention that must

be paid, relative to the past, on the alliance ‘‘upkeep’’ issues. To many observers,

this became apparent with the North-South summit as detente corresponded with

increasing South Korean antipathy toward the more intrusive elements of the American military presence. However, the roots of this dynamic lay not in North Korea’s ‘‘smile diplomacy,’’ but in South Korea’s democracy. In particular, issues with regard

to labor and the environment increasingly resonate with voters. Such issues traditionally had little traction in Korean politics, but with the end of the cold war,

democratic consolidation, and the emergence of a younger generation of politically

active, the political spectrum has broadened sufficiently to encompass civil-military

issues.

What this means for the alliance is that South Korean grievances vis-a-vis the

status-of-forces agreement (SOFA); basing and land-use, live-fire exercises; host nation support; and the combined forces command (CFC) structures increasingly will

become domestic-political issues around which local politicians can gain support. A

full discussion of these issues is beyond the scope of this testimony, but the US generally enjoys more favorable terms on these elements of the alliance compared with

its other alliances like NATO and the US-Japan relationship. For example, the CFC

has been a delicate sovereignty issue for the two governments. Operational control

traditionally belonged to the US until December 1995 when peacetime control (as

well as chief of the military armistice commission) was transferred to South Korea.

There are increasing calls in the post-cold war by South Koreans for wartime operational control; however this faces two obstacles: (1) the lack of adequate intelligence capabilities (which Seoul also desires the US to provide); and (2) US reluctance to concede wartime operational control in any theater it is in. Most likely, an

alternative arrangement would need consideration similar to a NATO-type combined

control system in wartime, or a US-Japan system of independent control but with

specified guidelines about roles and expectations for cooperation. With regard to

basing, the US currently occupies 78.6 million pyong (1 pyong = 3.3 square meters)

for 36,272 troops. While this amounts to a small fraction of total South Korean land

(.23 percent) , it accounts for 40 percent of the land in metropolitan Seoul. There

are increasing South Korean calls for changes in the percentage, location, and terms

of land used for the US base presence. Relative to Japan or the Philippines, the

ROK provides more exclusive land use rights to the US without compensation to the

private sector or does not hold the US accountable for damages (56% of the total

land usage is granted for exclusive use by the US).

Major changes to the alliance along any of these dimensions would have to wait

until a formal peace settlement on the peninsula. But in the interim, there are increasing pressures emanating from within the alliance to manage these issues in

a noncombustible manner that minimizes the negative civil-military externalities of

the US base presence. It is important to note that complaints regarding these issues

do not signal the end of the alliance. First, these ‘‘upkeep’’ issues would have surfaced on the US–ROK agenda regardless of the recent summit because as noted

above, they are a function of larger democratic consolidation trends in South Korea

and the rise of a politically active civil society. Second, contrary to popular perception, the object of these protests is not necessarily the end of the alliance or the

early withdrawal of US forces, but compensation or means of redressing grievances.

Finally, the alliance’s focus on these upkeep issues is actually a good omen for its

resiliency. In many ways, this represents a natural evolution in the alliance as the

South Korean junior partner seeks a more equitable position in the relationship.

This was the path of the US-Japan alliance as adjustments were made in the face

of problems in Okinawa which has made the alliance overall stronger. The US–ROK

alliance is making this transition as well, complementing the alliance’s tactical clarity with new attention to the upkeep and equity issues.

Unification

Finally, what about unification? The sight of Kim Jong-il and Kim Dae-jung embracing in Pyongyang was a cathartic event for Koreans filling a void in the Korean

psyche and national identity. Accompanying the display of raw emotion and joy at

this event was Korean claims that reconciliation for their long-divided country was

finally imminent. How close are we to Korea’s holy grail?

In the post-Cold war era, the spectrum of discussion about unification has ranged

from ‘‘hard landing’’ scenarios in which the South absorbs an imploded DPRK (popular in the early 1990s) to the ‘‘soft landing’’ scenario of a controlled process of

phased integration. But two tenets have been almost religiously accepted by all.

First, unification must come through the independent efforts of Koreans, without inVerDate 11-MAY-2000 16:20 Jan 24, 2002 Jkt 076190 PO 00000 Frm 00040 Fmt 6633 Sfmt 6621 F:\WORK\EAP\111501\76190 HINTREL1 PsN: HINTREL1
37

terference or obstruction from external powers. Implicit in this view is that the

major powers are fundamentally opposed to unification and seek to keep Korea

down. Second, unification is inevitable with the division of the country in the 20th

century an aberration of history for this homogenous nation.

The first of these tenets, which has been an underlying principle of unification

agreed upon by the two Koreas dating back to the 1972 joint communique and restated in every subsequent meeting including the June summit, requires analysis.

The notion of unification through independence (chajusong) is in principle unassailable, but in practice highly unlikely. This is less commentary on the innate ability

of Koreans, than it is Korea’s curse of geography. The peninsula’s location in Northeast Asia, in combination with the region’s power asymmetries (as a small power

among larger ones), has made Korea geostrategically critical to major power interests. Any who question this claim need only look at the past century where all of

the major powers (the US, Japan, China, and Russia) have fought at least one major

war over control of the peninsula. Thus, as long as states vie for power in the region, Korea will suffer the fate of the ‘‘shrimp crushed between whales.’’ If the peninsula were located by the North Pole, unification through independent means

might be possible, but its pivotal position makes major power interests inherent in

any changes on the peninsula.

The complementary argument to chajusong is that all the major powers oppose

unification. An opinion often espoused by Koreans, this view argues that the intentions of the major powers are to prevent a reunited Korea from upsetting the regional power balance, and despite rhetoric to the contrary, their grand strategies including the United States are dedicated implicitly to opposing or preventing unification. Koreans are indoctrinated in this view to such an extent that it has become

an unquestioned fact, and any evidence to the contrary is dismissed or ignored. This

is a terribly overstated myth. The major powers, in particular the United States and

Japan, do not oppose unification per se. They simply prefer the known status quo

to an unknown and potentially destabilizing future. The primary objective of each

major power on the peninsula with regard to its own national security is to maintain stability. In spite of the militarization of the DMZ and the absence of a peace

settlement, a strange form of stability has emerged since 1953 based on deterrence

and the military stalemate. A suboptimal outcome in the minds of all concerned

with the peninsula, this realized outcome is still preferable to a change in the status

quo where both the process and the outcome are wholly unknown.

In spite of these considerations, if the two Koreas were to begin a process of unification tomorrow, it would be wholly within US (and other major power) interests

to support this process without prevarication. This is because any actions to the contrary would undermine the other major objective with regard to unification: avoiding a united Korea aligned against it. Actively impeding or opposing a process once

it got started would virtually ensure a united Korean state hostile to one’s interests.

The standard truism about major power opposition to unification therefore is too

crude. While the impetus for changing the status quo is not likely to come from the

major powers, Koreans can be assured that once they started the process themselves, the external powers would be obligated to support it. This would not be out

of affinity, goodwill or loyalty (although these factors may be present), but because

it is in their respective interests to do so.

The NIMT (‘‘not in my time’’) consensus

The second tenet of unification—that it is inevitable because division is aberrant—has a ritualistic quality about it that obscures the real ambivalence with

which many Koreans themselves regard unification. Unification has always been the

holy grail, but the enthusiasm for it has fluctuated widely over the past decade. At

the end of the cold war, the common view was that unification (whether through

a hard or soft landing) was only a matter of time given the collapse of the Soviet

Union and the North’s economic difficulties. The Kim Young Sam administration in

the early 1990s claimed absorption of their northern brethren was just around the

corner. However, both the confidence and enthusiasm that typified South Korean attitudes waned dramatically thereafter. First, the North Korean regime defied all the

experts just by surviving, thereby ruling out the unification by default scenario. Second, a better understanding of the German case deflated Korean expectations in two

ways. The comparative indicators did not bode well for Korea since the economic gap

between East and West Germany was relatively smaller than that between the two

Koreas, and the capacity of the West German economy to absorb its counterpart also

surpassed South Korea’s. Moreover, what South Koreans saw as ill-advised mistakes by the Germans on integration policy (e.g. currency union) which they would

not duplicate, were in actuality unavoidable given the domestic-political pressures

of unification. For example, on currency union, contrary to South Korean beliefs, the

38

3Washington Post, 18 June 2000 (Doug Struck, ‘‘In the South, One Korea is Distant Goal’’).

German government was not ignorant of the inflationary pressures of a 1:1 conversion rate, but this action was unavoidable given the need to appeal to and accommodate a newly enfranchised East German electorate—a problem that a democratic

united Korean government would also face. Finally, while earlier assessments of

unification costs (by government-supported research institutes in the South) saw

these as manageable, more objective studies subsequently put the costs as high as

$1 trillion which far exceeded the German example. In good part, these new estimates corrected for the biases and unforeseen consequences in earlier studies. The

liquidity crisis that hit South Korea in 1997–98 brought into stark and sobering relief the high costs of such an exercise and essentially deflated any remaining buoyant expectations about unification.

The new ambivalence toward unification is manifest in several ways. Popular attitudes have changed markedly. Pragmatic considerations have intruded on what was

formerly a normative discourse on unification. In part this is linked to generational

change as fewer Koreans of the ‘‘war generation’’ experienced a non-divided country.

It is also linked to the North’s famine-like conditions over the past few years which

only further raised the anticipated costs of union. The result is that unification is

no longer seen in the same holy terms. The discourse quickly turns to the added

tax burden faced by Koreans and the vast pressures the northerners will place on

an already weak social safety net. Hence while it is still part of one’s Korean identity to yearn for unification in normative terms, a pragmatic ‘‘NIMT’’ (not in my

time) consensus has emerged. As one observer noted, ‘‘[Unification] is a goal recited

with an understood wink. While virtually everyone in South Korea vows allegiance

to it, few people actually want it to happen very soon, if at all.’’ 3 Moreover, to explicitly enunciate such doubts and ambivalence, while understood by all, would be

blasphemous.

This NIMT consensus is also apparent in current South Korean government policy. A number of traits distinguish Seoul’s ‘‘sunshine’’ or engagement policy with

North Korea, including the persistence and consistency of the policy in spite of

DPRK provocations, and the open-ended nature of engagement (encouraging all

countries to engage with North Korea). But what is most important in the context

of this discussion is that it is the first northern policy in South Korean history that

does not explicitly bespeak of unification as a goal, effectively taking it off the political agenda (in the South). Such a unification-agnostic policy is both facilitated by

and symptomatic of this larger shift in attitudes.

These changing attitudes affect how the US should be thinking about future peace

solutions on the Korean peninsula. This is generally thought of along two dimensions: 1) a continuation of the status quo; or 2) victory of one side over the other.

However, the shift in Korean attitudes on unification means that we need to think

about peace solutions on the peninsula that are increasingly non-zero sum in nature. Advancing from an armistice to a peace treaty is certainly requisite, but moving beyond that, possible peace solutions could include: 1) Korean coexistence and

US withdrawal or 2) Korean coexistence and the US as a peacekeeping entity on

the peninsula. There are other possibilities but the point is that as rethinking on

unification occurs, options for the US military presence move beyond the two dimensions we are generally accustomed to thinking about.

Perspective, Not Pessimism

With all the change that appears to be sweeping the Korean peninsula since the

June 2000 North-South summit, congressional testimony that stresses constancy

may appear to rain on Korea’s parade. But such testimony constitutes an appeal for

perspective. The summit and its aftermath open the first narrow window on North

Korean intentions. This is extremely important but it is also inconclusive. While we

may indeed sit at the threshold of long-awaited change on the Korean peninsula and

a real chance for lasting peace, clearly the hard work is yet to be done. Credible

communication of a change in intentions must be done not through rhetoric, but

through changes in military capabilities including the conventional balance of

forces; the DPRK’s missile and WMD programs; and beyond this, the status of US

forces on the peninsula. Only with these changes will the skeptics be convinced of

that which we all wish to be true—a peace solution on the Korean peninsula, which

would be the most important event in East Asia since World War II.

Mr. LEACH. Thank you very much for that very interesting testimony.

Ms. Wallander?

39

STATEMENT OF CELESTE A. WALLANDER, DIRECTOR AND

SENIOR FELLOW, RUSSIA AND EURASIA PROGRAM, CENTER

FOR STRATEGIC AND INTERNATIONAL STUDIES

Ms. WALLANDER. Thank you, Mr. Chairman. I am grateful for

the opportunity to contribute to the work of the Committee as the

United States develops a relationship with Russia in cooperation

against international terrorism. I think it is important, and this

Committee clearly recognizes, that President Putin’s decision to

join the west in that task does not negate the reality of Russia’s

Asian presence and we need to understand the bases of Russia’s

Asia policy in order to cope effectively with our partners in challenges in the region as well as the U.S-Russia relationship.

I will not go through my analysis of the bases of Russian foreign

policy extensively here, I have submitted it in my written testimony, but I will point out two aspects that are very important. One

is that the most important threat to Russian national security

identified in an array of Russian documents is the need for domestic economic reform, and that need for domestic economic reform is

tied in important ways to Russia’s involvement and interaction in

the international economy. It draws Russia into particular relationships with particular sets of countries, depending on the economic

sectors that are the basis for trade policy, investment policy and so

on. It is important to understand that for the post part in Asia that

means arms sales and it means energy development. I talked a little bit about the details of that with relation to different countries

and we could talk more about that in detail.

The other important security problem or threat that is important

to understand, that Russia has emphasized for some time, is terrorism and stability in Eurasia, I think from the Russian point of

view the tragic events of 9/11 are sharp and important in the Russian response because this has been a continuing theme for several

years. It in fact is no surprise that President Putin was the first

leader in the international community to call President Bush after

those events because this is something that has been much in the

Russian security consciousness for some time.

Now, I think that what has happened in September and after is

important because it changes the basis for three important objectives in Russian foreign policy in general, but specifically in Asia.

The bases for those Russian foreign policy objectives are establishing itself as a power in world politics, securing the territorial

integrity and stability of the Eurasian land mass, and, third, participating in international trade and finance.

In terms of Russia’s relations with China, an important element

of Russia’s relationship and its development of ties with China over

the last few years has been China’s role in making Russia important to the United States. 9/11 changes that. 9/11 makes Russia

important to the United States on its own terms and thereby 9/11

diminishes the importance of China in this aspect of Russian objectives and also strategies.

Russia and the United States are in close consultation in intelligence sharing and the volume, quality and importance of the information has been substantial. This in and of itself brings the U.S.

and Russia closer together.

40

Furthermore, while Russia does not have a veto over the choices

of the sovereign countries in Central Asia, in practical terms the

willingness of Tajikistan and Kazakhstan to allow the U.S. to base

forces on their territory needed active Russian support, if not

agreement.

Furthermore, Putin has since gone even further on the military

front and stated this week that Russia is willing to engage actively

in search and rescue missions to aid U.S. forces if necessary. These

are not simply statements of support, which are, of course, welcome

from whatever direction they come from in the international community these days for the United States, but they materially affect

the ability of the United States to succeed in the campaign against

the Taliban and al-Qaeda in Central Asia.

Given concerns about the stability of Pakistan and that country’s

ties to the Taliban, the Central Asian countries become important

not only in the short term, as we have seen in the last few weeks

in the successes and support of the Northern Alliance against the

Taliban, but also as we think about our long-term presence in the

region and the stability and cooperation we will see in the region

from countries that have so far joined us and given us that kind

of support. As the campaign against terrorism moves on from the

Afghan theater, Russia will likely continue to play an important

supporting role, even if the United States does not entirely accept

and should not entirely accept Russia’s view of the nature of terrorist phenomenon in the Caucasus and elsewhere in Eurasia.

In addition, if there is a serious post-conflict reconstruction Afghanistan, Russia’s location and support in Central Asia will remain important, as will its status, of course, as a permanent member of the U.N. Security Council.

So in short, Russia all of a sudden does not need China to be important to the United States and this is significant, not just in the

relationship, but in what was driving the Russian relationship with

China, moving toward and including the signing of the friendship

treaty this year in July.

Furthermore, I think two other implications of Russia’s importance create problems in the China-Russia relationship. First, the

U.S. and Russia are moving rapidly toward a workable compromise

on the ABM treaty and missile defense testing and research. Even

if there is not at this week’s summit an agreement on compromising on the ABM treaty, I think it is likely that in the coming

months we will see some kind of compromise on the treaty that will

allow Russia to state that the treaty has been preserved, but that

allows U.S. testing, research and limited development.

Clearly, one aspect of Russian-Chinese relations over the last few

years has been the commonality of views between those two countries and the importance of the ABM treaty and the need to oppose

the United States in seeking to either exit it or change it.

If Russia does, as I believe it will, compromise with the United

States on this treaty, it will certainly create problems in the relationship but, more to the point, it may create a sense in China that

Russia has left it abandoned and this could have broader effects in

the relationship.

Furthermore, Russia no longer needs the ABM treaty to claim a

seat the security table with the United States because of all the asVerDate 11-MAY-2000 16:20 Jan 24, 2002 Jkt 076190 PO 00000 Frm 00044 Fmt 6633 Sfmt 6601 F:\WORK\EAP\111501\76190 HINTREL1 PsN: HINTREL1
41

pects of the partnership against terrorism that I have already described. I think that these mutually reinforcing elements in Russia’s relationship with the United States will make this a durable

one, not merely one related to the campaign against terrorism, but

a longer-term basis for U.S-Russia relations.

The second implication is that Russia has significantly down

played the argument that the war in Chechnya is purely an internal matter. The Putin strategy has been to argue that Chechnya

is an international issue because of the link of fighting there to

international terrorism.

Now, this undermines an important aspect of China-Russia diplomacy over the last couple of years, too, which is to reinforce one

another’s positions that Chechnya on the Russian side and Taiwan

on the China side are purely internal matters. This is not say that

Russia is all of a sudden going to start arguing that Taiwan is an

international matter, but it does mean that the Putin government

is not going to be expending much diplomatic effort in reinforcing

the argument about the importance of the United States understanding the boundaries of what is internal and what is international.

On the second front, that is, Russia’s concern for stability in the

Eurasian land mass, China becomes less important for managing

Central Asian security and in particular terrorism in the region

and Russia’s policy.

Why bother investing in the Shanghai Cooperation Organization

when the important effect of alignment of countries to deal with

terrorism in the region is the U.S., Russia, Uzbekistan, Tajikistan

and Kazakhstan?

What was driving Russia to develop the Shanghai Cooperation

Organization with China was to manage China’s growing role in

Central Asia. If the United States is in Central Asia and Russia

and the United States have a common view of what needs to be

done in the region, the importance of engaging with China on this

issue through that institution or even bilaterally is eroded.

The economic issues that I referred to are important, and the

third objective in Russian policy, also are affected by 9/11. We have

seen some of that with the discussion at the U.S.-Russian summit

on U.S. assistance in making Russia ready for membership in the

World Trade Organization: initiatives to develop business contacts,

and these kinds of developments that have been strongly supported

by the Bush Administration. But I think it is also at the same time

important to understand that the Russian-Chinese economic relationship is likely to be the exception to the rules I have just laid

out about a change in the relationship, and that is because that

economic relationship is based on two sectors of the Russian economy that are extremely important to the Putin leadership: arms

sales and energy development.

Arms sales are important because arms sales to China and other

countries, including India, basically are keeping the Russian defense industries alive right now. As the Russian government is not

doing much procurement of its own in order to keep its own defense industries alive and move on to reform in the industry and

rebuilding Russian military power, those relationships take on an

importance that go beyond the actual aggregate amount of money

42

spent, but are important for reasons related to industrial policy,

keeping that sector of the economy alive.

Furthermore, President Putin said this week that the problems

of defense reform in Russia are now moving into a higher priority

in his government and that they involve, as he said, both the

progress of reform and armed forces provision with up to date

equipment and hardware. I think that means that there is going

to be even more of an emphasis on restructuring the enterprises

within that industry that are successful, and some of the most important enterprises that are successful in the industry are aircraft,

and those are important in the relationship with China.

Similarly, Russia remains very interested in China as an energy

export market and in potential Chinese investment in its Far Eastern energy resources. In fact, if there is a global demand fall due

to recession, and in particular if countries such as Japan face problems in their economic performance and their demand for energy

imports falls, China could become very important if its own growth

and growing demands are not too badly depressed by a global slowdown.

So it is important for us to understand this important constant

element in the Russian-Chinese relationship within this array of

what I think is actually a far more substantial and far reaching

change that we are going to see so that we are not surprised by

it and so that we understand that it is not inconsistent with

Putin’s overall objectives and decision to support counter-terrorism.

Now, just a couple of—it has been a long afternoon—a couple

more comments just on the Japan and Korea fronts very briefly.

One is that I see the opportunity for an improvement in Russian

and Japanese relations from the Russian perspective, and I understand that the other part of the equation is potentially more complicated. The Kuriles Islands territory issue remains an enormous

obstacle, but many of the interests which are pushing Putin toward

cooperation with Europe which have been quite successful are also

in play in thinking about Russia’s relations with Japan. That has

to do with attracting investment to develop consumer industries

which are virtually non-existent in the Far East, but ultimately are

going to be extremely important if the Russian federation is not to

break apart.

Also the development of energy resources in the Far East. China

is a promising market, but the Russians know that they do not

want to be dependent on single markets in any region and, in particular, in the far east. Japanese involvement in the development

of the Sakhalin oil and natural gas deposits has been very significant in Russian calculations about focusing on getting better corporate governance laws through the Duma and increasing transparency in the business climate, because they understand that the

kinds of resources necessary to develop those energy resources in

the Far East are going to come from a mix of domestic but also significant international investment.

In addition, Russia and Japanese relations are promising in Central Asia. One of the areas where Japan has been active in a way

that is supportive of Russian interests has been in its involvement

in seeking to support social and economic development in the region. It strikes me that the terms we heard about in Japan’s supVerDate 11-MAY-2000 16:20 Jan 24, 2002 Jkt 076190 PO 00000 Frm 00046 Fmt 6633 Sfmt 6601 F:\WORK\EAP\111501\76190 HINTREL1 PsN: HINTREL1
43

port for reconstruction of Afghanistan create the opportunity for a

much more substantial partnership. Since the Russians do not

have a lot to bring to the table by way of social resources or economic resources and are likely to play more of a peacekeeping role,

if anything, it seems to me there is a complementarily of interests

that U.S. policy in the region can reinforce.

Finally, on Korea, much of what I would say about the economic

relationship between Russia and Japan also holds for South Korea,

so I will not repeat it: the importance of the energy sector, but also

possible cooperation in military sales, since there have been substantial programs in military-to-military cooperation and contact

between Russia and South Korea.

The interesting conundrum for me, and I do not have an answer,

so I am going to lay it out as a question for us, is the Russian relationship with North Korea. It strikes me that the Russian assets

in dealing with North Korea have become less important after 9/

11, in particular, the use of North Korea and a close relationship

with North Korea to argue against American need for missile defense has been undermined by the general improvement in U.SRussia relations and the movement to some sort of compromise on

the ABM treaty.

If North Korea is less important for that diplomatic leverage in

proving that Russia can play a role in that, just what does a close

relationship with North Korea provide Russia? I think what we are

going to see on a broad array, even outside of Asia, is the Russian

leadership looking at its Cold War leftovers. We have seen that, for

example, in Putin’s decision to close the signals base, the intelligence gathering base in Cuba. North Korea may well be next as

something that you need to jettison from the Cold War to move forward in a substantial relationship with the United States from

Putin’s point of view. So we need to think about the difference between Russian policy on North Korea and South Korea as well.

Thank you.

[The prepared statement of Ms. Wallander follows:]

PREPARED STATEMENT OF CELESTE A. WALLANDER, DIRECTOR AND SENIOR FELLOW,

RUSSIA AND EURASIA PROGRAM, CENTER FOR STRATEGIC AND INTERNATIONAL

STUDIES

Mr. Chairman, I am grateful for the opportunity to contribute to the work of your

committee as the United States faces the opportunity of cooperation with Russia to

defend against international terrorism. President Putin’s decision to join the West

in this task does not negate the reality of Russia’s Asian presence, and we need to

understand the bases of Russia’s Asia policy in order to cope effectively with our

partners and challenges in the region.

BASES OF RUSSIAN FOREIGN POLICY UNDER PUTIN

Putin came to office with three broad objectives: to strengthen and control the

Russian state and politics, to create economic growth and restructure the Russian

economy, and to establish Russia as a power and player in international affairs. The

three are obviously interlinked: state power is necessary to pass and implement economic reforms, economic growth (arising at first from higher oil prices and the effects of default and devaluation in August 1998) creates budget resources that make

political success possible. And to play a role in international politics more worthy

of Russia’s vision of itself than as its position in the 1990s as an irresponsible and

unreliable storehouse of weapons of mass destruction (WMD), Russia had to get its

domestic political economic house in order first.

Therefore, it is important to understand the domestic political and economic coalition behind President Putin because it is linked closely to Putin’s foreign policy, parVerDate 11-MAY-2000 16:20 Jan 24, 2002 Jkt 076190 PO 00000 Frm 00047 Fmt 6633 Sfmt 6621 F:\WORK\EAP\111501\76190 HINTREL1 PsN: HINTREL1
44

ticularly in ways that distinguish it from Yeltsin’s foreign policies. First, Putin is

dealing with a different set of economic incentives and opportunities. The economy

grew by 8.3% in 2000, and projections are 5.5% for 2001. In the initial period,

growth was due almost entirely to the effects of devaluation of the ruble (and thus

the effects of import substitution as Russian goods became more competitive) and

increase in international oil and gas prices.

Oil and gas remain vital to Russian economic growth: it is estimated that every $1 change in the price of a barrel of crude oil is worth $1.2 billion to the Russian

economy (with a projected nominal GDP of $300 billion for 2001), with about onethird of the amount going to the government budget in taxes and duties. However,

while import substitution effects were important in the early period of growth after

1999, there are signs that the Russian economy has moved past this short-term

boost and may now show growth because of more stable factors. Industrial production last year was 11.9%, and in 2001 a growing percentage (over 61%) of Russian

enterprises are reported to be profitable. Real wages and real incomes continue to

grow in 2001 (at 16.7% and 5.4% respectively), which contributes to continued

strong domestic consumption.

Russia has a very long way to go to sustainable growth, most significantly the need to invest some $2.5 trillion over the next 20–25 years to replace aging Soviet

infrastructure and make up for the absence of investment in the 1990s, but some

of the elements of sustained growth are in place and having an effect on Russian

economic performance. Recently, there are signs that Russian businesses themselves

are beginning to re-invest in the Russian economy, a crucial test for long-term

growth.

Consequently, it is easy to see why foreign markets for Russia’s oil and natural

gas are so important. Without healthy and growing energy sales on international

markets, the government has no breathing space to maintain fiscal responsibility

(the Russian government budget surplus was 2.5% of GDP in 2000, and is projected

to be 3.1% in 2001), which in turn has been crucial to macroeconomic stability. Rising real wages and consumption help to sustain political support for the government, as it has begun to move to tackle problems like the tax system, energy restructuring, banking reform, and a new land code—all of which create costs for different groups and interests in Russian society.

The manufacturing sectors of the Russian economy that are internationally competitive are military arms, nuclear power plants, and space technology. The domestic market for all three is very limited, which is one reason why foreign markets

are important. The first two sectors in particular pull Russian foreign policy toward

countries like China, Iran, India, Syria, and Iraq, which have an interest in the

goods, ability to pay, and difficulties on Western markets. Russian arms sales in

2000 were about $4 billion, while the entire Russian defense budget was just under

$8 billion.

An $8 billion official defense budget (real spending is probably higher once one

includes defense related spending not listed in the official budget) may sound respectable for a country with a nominal GDP of $300 billion, but virtually none of

Russian defense spending is for procurement, which means that Russian foreign

arms sales are keeping its defense enterprises open and operating. This is significant not only in economic terms, but also politically, because much of Russia’s defense plants are located in single-factory towns as a consequence of Soviet industrial

practices, and the populations of those towns are entirely dependent on the military

economy for survival. Large Soviet-era defense companies, such as Uralmash in

Sverdlovsk have a direct stake in arms sales to China, such as a $150 million subcontract tied to Rosoboronexport’s (Russia’s state arms trading company) contract to

sell a submarine to China.

In particular, foreign sales of military aircraft are keeping Russia’s defense capacity alive while the battle over domestic military and defense industry reform begins.

Arms sales are directly connected to Putin’s plans for restructuring the Russian defense industry, and account for over 50% of Russia’s armament exports. The government announced this month that three important aviation companies will be merged

to create a powerful aircraft manufacturer, the new Sukhoi Aviation Holding Company, which among its other important foreign ties will have contracts with China

for production of Su-27 and Su-30 fighters. The crucial domestic government dimension is that this company is to be one of the cornerstones of Russia’s defense reorganization and modernization, and will also be tasked with modernization programs for the Russian Air Force’s Su-27 and Su-30s. Because of resource stringency,

the company is receiving the bulk of its resources from its contracts to produce for

China.

Therefore, it is crucial to understand Russia’s arms sales not only in terms of diplomatic relationships and regional great power politics, in which they undoubtedly

45

play a role, but in terms of domestic economic and political priorities. Russia’s budget surpluses cannot be used to fund every need in the resource-starved country, so

foreign arms sales make it possible to keep Russia’s defense industries alive to support reform and modernization, which the leadership claims is next on the political

agenda.

Another sector of the Russian economy with a stake in Russian foreign policy is

the consumer sector that has been important for growth over the past two years.

Because of the import substitution effects, the sector has done well, but as these

effects diminish, the sector will need substantial investment and advanced management skills to continue to succeed. This is one of the sectors of the economy where

business interests have pushed for improvement in Russia’s foreign investment climate. In 2000, Russia attracted only $4.4 billion, or one-half of 1% of the global

total. These industries, their interest European business contacts, and their support

for corporate governance and banking reform necessary to attract foreign direct investment are a fascinating foil to the interests of Russia’s aging but persistent defense industries.

However, while the consumer sector has been a strong base for the development

of stronger Russian-European ties under Putin, it does not play a similar role in

diversifying Russia’s economic links in Asia and in balancing the importance of old

Soviet economic sectors such as the defense industry. Partly, this is due to the nature of Russia’s far east economy, which was not well-developed in light industry.

Partly, it is due to the general decline of Russia’s far east, which was developed in

Soviet times as much for political reasons (to support the defense production and

research sectors) and which faces built in obstacles to adjusting to market conditions. In large measure, it is due to the policies of Russia’s far eastern regional leaders (most notoriously former Primorskiy krai governor Nazdratenko) who have not

worked to make their regions hospitable investment and business climates, as have

some of Russia’s notable European governors, such as Mikhail Prusak of Velikiy

Novgorod.

Therefore, to understand Russia’s overall and regional foreign policies, one must

understand how the Putin leadership owes its success to significant economic interests, as well as to supporters of political centralization and control in his leadership

circles. It is the only way to understand the diversification of Russian foreign policy

under Putin and its very pragmatic orientation, as is clear in the record of Russian

foreign policy over the past two years. It is also the only way to understand how

Putin’s Russia has been active in developing foreign relations not only in Europe,

but throughout Eurasia and Asia. Relationships with different countries and different regions fit in with different types of Russian economic interests and policies.

The question for U.S. policy now is whether Putin’s decision to support the U.S. in

the fight against terrorism alters the balance of economic and geopolitical incentives

and opportunities in a way that will change Russia’s relations with the important

countries in the region.

RUSSIA’S OBJECTIVES AND ITS RELATIONS IN THE FAR EAST

Putin’s Russia has three main foreign policy objectives: establishing itself as a

power in world politics, securing the territorial integrity and stability of its vast

Eurasian landmass, and participating in international trade and finance. In the best

of all worlds for Russia, the three are mutually reinforcing, but they are important

to keep distinct, because they also can come into conflict, especially in Russia’s east

Asia policies.

Over the past few years, these three interests have been generally reinforcing in

Russia’s relations with China, and have been the reason for the development of a

Russian-Chinese ‘‘strategic partnership’’ that appeared to have been sealed when

the two countries signed the Treaty on Good-Neighborly Relations, Friendship, and

Cooperation in July 2001. Russia’s weakness and the unhappy condition of Russia’s

relations with the United States have made stronger relations with China a potential asset in achieving progress on all three dimensions.

In resisting what both countries deemed U.S. unilateralism and hegemony, the relationship with China provided Russia with diplomatic alternatives to accepting the

reality of U.S. power and ability to go it alone on a range of important foreign policy

issues. Beginning with their joint bitter criticism of the NATO (understood by Russia as essentially U.S.) intervention in Kosovo, the Russia-China alignment against

the U.S. as the sole superpower made Russian resistance potentially more effective

on the world scene than would have been lone complaining. The bilateral commonality of views gave greater legitimacy to the complaint. In terms of basic politics, the potential for Russian cooperation with Chinese on defense and security

46

issues meant that the U.S. needed to take account of Russia in Eurasia and the Far

East to a greater degree than its actual power would warrant.

For the most part, Russia was the weaker partner in this diplomatic leveraging

for global presence. As a rising power with a more successful economy supported

by a more effective political system, China commanded U.S. attention in Asia regardless of Russia. The one important exception to this imbalanced relationship was

on the ABM Treaty and U.S. pursuit of missile defense. As a party to the ABM

Treaty (by virtue of its status as the sole continuing Soviet successor state), Russia

has a claim on U.S. policies and programs that China does not. Insofar as a limited

missile defense would threaten the credibility of China’s nuclear retaliatory capability while not eliminating Russia’s, China was the weaker partner in joint Russian-Chinese assertions of the importance of preserving the ABM Treaty, dependent

on Russia’s prerogative to hold the U.S. to account. Furthermore, insofar as China’s deterrent and U.S. defense remains linked to calculations about the credibility of

each country’s positions on Taiwan, the strategic partnership was not entirely onesided. The July 2001 Russian-Chinese treaty includes four articles pertaining to

missile defense, obligating the countries to maintain global strategic balance and

stability and to enter consultations when either perceives such an emerging threat.

On the question of the integrity of its Asian territory, Russia has operated from

a position of weakness in two respects. First, Russia’s claim to predominant influence and interest in Central Asia had been eroding over the 1990s. As China came

to view terrorism in the region as a greater threat to its own territory and as it

began to pursue relations with the Central Asian countries (Kazakhstan,

Uzbekistan, Kyrgystan, Turkmenistan, and Tajikistan) to claim the right to address

international terrorism in the region, Russia sought to pull China into its own preferred avenues for managing the states in the region and the array of security problems the region presents, including border security and illegal trafficking along with

terrorist networks. Russia’s achievement was the Shanghai Cooperation Organization (which was initiated as the Shanghai Five in 1996 when it included Russia,

China, Kazakhstan, Kyrgystan, and Tajikistan, expanding to Six with Uzbekistan

in June), but it was a dilution of Russian influence in the region relative to the

Tashkent Treaty arrangement, in which Russia could claim rights in the region related to collective security without having to share leadership with China.

The second dimension of Russian weakness in the relationship is its demographic

crisis in the Far East and the potential pressure coming from China’s far more

dense and dynamic population in the region. While earlier attention to the issue

may have exaggerated the threat (stories of one million Chinese living illegally in

the Russian Far East becoming a force for territorial claims in particular), it is certainly the case that Russia’s Far East is in trouble. The region continues to suffer

from low growth, high unemployment, and depopulation as Russians move to Russia’s European parts in search of work and a better life. While Chinese economic

migrants have turned out to be traders who do not seek to remain, the potential

for Russian hostility to Chinese presence and economic success remains strong. This

problem is borne of Russian weakness, especially relative to China’s population and

commercial vitality in region, and is likely to remain a potential problem for the coherence and viability of the country’s Far East regions.

A more balanced element of Russian and Chinese common interests related to the

territorial integrity and terrorism issues is the link in the countries’ positions on

Chechnya and Taiwan as ‘‘internal matters’’ in which the international community

has no right to interfere, and in their mutual support for one another’s positions

on the status of those entities. The 2001 Treaty committed each to support the other’s policy in questions linked with defending their territorial integrity.

Finally, on Russia’s international economic objectives and ambitions, China has

been a major component of Russia’s global as well as regional strategy. RussiaChina trade is up 31.5% in the first 9 months of 2001 over the same period last

year at $7.6 billion. Russia has a substantial surplus in its trade with China, $5.8

billion in exports against $1.8 billion in imports. The proportion remains less significant than Russia’s trade with Europe, which accounts for over 50% of Russian exports, but with Russia’s January-September 2001 trade turnover at $105.8 billion

China accounts for 7% of Russia’s trade.

More to the point, the trade is concentrated in the important arms and energy

sectors. Earlier, I explained the importance of arms sales to Putin’s domestic as well

as foreign policy goals, a sector where China’s purchases are crucial to the Russian

strategy. Yet while much U.S. attention has focused on Russian arms deals with

China because of the regional security implications, at least as important are trends

in China’s focus on Russia as a source of energy as its economy grows and demands

increase. China National Petroleum Corporation is exploring oil and gas sources in

northern Far East region, including not merely purchases, but equity in Russia’s enVerDate 11-MAY-2000 16:20 Jan 24, 2002 Jkt 076190 PO 00000 Frm 00050 Fmt 6633 Sfmt 6621 F:\WORK\EAP\111501\76190 HINTREL1 PsN: HINTREL1
47

ergy companies exploring in the region. After talks with the local Russian company

Sakhaneftegaz, CNPC has decided to build a gas pipeline and has expressed interest

in an oil pipeline. Russian companies are working on supply options to China as

well, including not only from Russia’s Far East, but Central Asia and even the Caspian. Gazprom has won a tender to build a transcontinental pipeline to China that

will require about $6–8 billion to complete the 6000 kilometer pipeline.

Another option is for China to participate in the development of oil and gas pipelines from deposits off the Russian island Sakhalin, which is the focus of Russia’s

current energy expansion in the Far East. Sakhalin may provide east Asian countries with Russian oil as well as natural gas for heating and electricity. The

Sakhalin-1 and -2 projects involve different mixes of oil and gas, and involve different consortia of companies. Participating in Sakhalin-1 are SODECO (Japan),

Exxon, Indian ONGC Sakhalinmorneftegaz-shelf and RosneftAstra, with overall investments estimated to total $12 billion. Sakhalin-1 will produce in the first stage

primarily oil, with development of three oil and gas fields to begin in 2002. Daily

oil production is planned to amount to 250,000 barrels, nearly all of which will be

exported to Japan, covering 6% of the country’s oil needs. The Sakhalin-2 consortium includes Shell, Mitsui and Mitsubishi, with total estimated investment over a

decade estimated at $10 billion. It is primarily a natural gas project, with plans to

sell liquefied natural gas (LNG) to Japan, South Korea, and Taiwan. The consortium plans to build Russia’s first LNG plant by 2006. Sakhalin-2 production is currently seasonal because the production rig is ice-bound, and plans to build pipelines

would enable year round production.

In addition to selling oil and natural gas, Russia’s Far East could become a source

of electricity in the region. Russia’s Unified Energy Systems (Russia’s electricity monopoly headed by Anatoli Chubais) has announced that it intends to construct an

energy link between Sakhalin and Japan by 2010–2012. The idea is to generate electricity from the Sakhalin-1 and Sakhalin-2 continental shelf drilling projects and

sell the electricity, not merely the natural gas, to Japan. The plan requires an electric power generation plant on Sakhalin and underwater power transmission lines.

These energy market plans create the opportunity for stronger Russian-Japanese

economic relations, but they are in the early stages and the relationship remains

limited. Russia’s trade turnover with Japan in the first nine months of 2001

amounted to only $2.7 billion, less than half of that with China. However, Japan

could well ultimately hold the key to keeping Russia whole: the Far East’s economy

is in shambles, evidenced most dramatically by the failure of its electricity system

last winter (with temperatures falling to 50 degrees below zero, much of Russia’s

Far East went for days at a time with electricity blackouts). Development of its

Asian energy markets would enable Russia not only to reap the gains of trade, but

would contribute to an energy infrastructure necessary if Russia’s own Far East is

to remain viable. Unlike their fear of China’s rise and potential designs on Russian

territory, many Russian Far East elites welcome the prospect of Japanese investment. The potential complementarities of the economies are very intriguing and extend beyond energy. For example, now that Russia has said that it will sign the

Kyoto protocol on global warming (having achieved generous interpretations of Russian emission rights), Japan is a large market for Russian sale of its pollution rights

under this treaty.

When President Putin visited Japan, he invited the president of Japan’s Business

Association to visit, which he did in June 2001 with a delegation of 200 Japanese

business people who visited several different regions of Russia. Putin met with the

group in Moscow and explained the then draft laws designed to create a better business climate. Although the business people were reported not to be impressed with

the state of Russia’s economy in the Far East, they had a favorable impression of

the legislation and Putin’s commitment to achieving a workable business climate.

The problem in the Russian-Japanese relations remains, of course, the dispute

over the Kurile Islands (or Northern Territories). In practical terms, any of the pipeline options in Sakhalin would require government approvals and studies, and official policy remains constrained by the lack of a peace treaty ending World War II

between Russia and Japan and ceding the four northern islands to Japan. During

Putin’s leadership there has been some progress on the issue, when Putin said in

March that the Soviet Union’s 1956 declaration on resolving the dispute was viewed

by his government as legally binding on Russia as the Soviet successor state. That

declaration provided for returning the two southern islands after conclusion of a

peace treaty, to be followed by negotiation on the status of the remaining two. Japanese Prime Minister Koizumi raised the question of opening discussions on that

basis in both Genoa and Shanghai this year, but the Japanese position is that the

two countries need to discuss return of the two southern islands and a peace treaty

48

in conjunction with a second track discussion on the status of the other two. In October the two leaders agreed to more talks on the island issue.

The potential of two parallel tracks creates the opportunity to meet both countries’ requirements, but does not solve the question of how the two tracks would be

connected. Japan wants a very close connection, while Russia has shown no sign of

going beyond the concession that Putin made in his March declaration.

Therefore, while Japan has not quite been for Russia an alternative to China in

meeting its three foreign policy objectives in the region (its status as a world power,

territorial integrity, and international trade), the relationship has some advantages

in diversifying Russia’s relations away from dependence on China. The opportunity

has not been realized in large measure as a result of the Kuriles dispute, but also

by the past smaller scale of Japanese involvement in economic relations with Russia. However, if the relationship were to develop, it would offer significant benefits,

not least the potential for a more balanced Russian economic profile in trade in the

region (including fishing and related industries as well as the consumer sector)

away from the dominant role of arms in Russian-Chinese trade.

Economic diversification and its potential positive effect on Russia’s role and relationships in the regions is highlighted by the potential for Russia’s relationship with

South Korea. In addition to the opportunities for oil and natural gas exports to

South Korea, Putin’s government is very interested in the development of the

Transiberian Railway as a transportation link from South Korea to Europe that

would (Russian officials claim) reduce delivery cargo time from Asia to Europe substantially. To make the idea really work, it would require that the Russian railroad

link to an inter-Korean railroad, which of course in turn depends on positive developments in North-South Korean relations. Thus, a thaw between the two Koreas

could create an economic bonanza for Russia.

The signs are that the Putin government supports closer Korean relations but has

not given up on supporting (within moderate bounds) the current North Korean regime. The Russian press suggests that the government may provide North Korea

with electricity this winter, and Putin has warned the U.S. against isolating North

Korea because it had become clear that it was not the source of terrorist threat. Although directed at undermining the U.S. case for missile defense, Russia’s refusal

to abandon support for North Korea is based on regional issues as well, including

(as Putin pointed out a few days ago) that North Korea borders on Russia, which

has a large Korean diaspora.

Yet combined with the incentives facing Russia to encourage North Korea to behave more responsibly in order to negate the U.S. position on North Korea as a

threatening rogue state, the commercial incentives from this interesting transportation scheme illustrate how it is possible that Russia’s economic interests and relationships in the Far East could possibly in the future develop in a more integrationist mode consistent with U.S. interests and regional allies than has been true

of Russia’s relations with China over the past decade. South Korea and Japan are

not going to replace China in Russia’s policies, because of China’s importance to all

three objectives, as we have seen. But the positive diversification of Russia’s foreign

policy under Putin that we have seen in Europe is now a potential—if on a far

smaller scale in the near term—for Russian policy in the Far East.

IS THERE CHANGE WITH RUSSIA’S PARTNERSHIP WITH THE U.S. AGAINST INTERNATIONAL

TERRORISM?

Putin’s decision that Russia would join and actively support the U.S. fight against

international terrorism potentially changes to a very significant degree Russia’s constellation of relations in the Far East, if the analysis I have presented above is correct.

On all three main Russian foreign policy objectives—establishing itself as a power

in world politics, securing the territorial integrity and stability of its vast Eurasian

landmass, and participating in international trade and finance—China is less important.

Putin’s choice has established Russia as a very important ally in the fight against

terrorism. Russia has provided vital intelligence on conditions in Afghanistan, the

Taliban, and terrorist networks. Russia and the U.S. are in close consultation in intelligence sharing and the volume, quality, and importance of the information and

cooperation has been substantial.

Furthermore, while Russia does not have a veto over the choices of sovereign

countries in Central Asia, in practical terms the willingness of Tajikistan and

Kazakhstan to allow the U.S. to base forces on their territory needed active Russian

agreement. Putin has since gone further, and stated this week that Russia is willing

to engage actively in search and rescue missions to aid U.S. forces if needed.

49

Given concerns about the stability of Pakistan and that country’s ties to the

Taliban, the Central Asian countries became more important for the military operations in Afghanistan over the last few weeks. In addition, with the focus on creating conditions whereby the Northern Alliance could defeat the Taliban on the

ground, it became more important for U.S. aircraft and Special Forces to operate

from the north.

As the campaign against terrorism moves on from the Afghan theater, Russia will

likely continue to play an important supporting role, even if the U.S. does not entirely accept Russia’s view of the nature of the terrorist phenomenon in the

Caucasus. In addition, if there is a serious post-conflict reconstruction of Afghanistan, Russia’s location and support in Central Asia will remain important, as will

its status as a permanent member of the UN Security Council.

In short, Russia does not need China to be important to the U.S. Furthermore,

two of the implications of Russia’s importance and role create problems for China

as well.

First, the U.S. and Russia are moving rapidly toward a workable compromise on

the ABM Treaty and missile defense testing and research. It is likely that if not

at this week’s summit then before President Bush’s visit to Russia in June 2002

that the two parties to the treaty will interpret it to allow the U.S. to proceed with

planned testing and research. While this will preserve the treaty and the framework

of strategic stability which rests upon it, as Russia has committed to do in the 2001

treaty with China, it does so by allowing the U.S. to move forward with programs

most likely to erode China’s deterrent. One of the main diplomatic benefits China

was to achieve from its relationship with Russia will be lost, or at the very least

degraded.

Furthermore, as Russian military expert Alexander Golt has argued, Russia no

longer needs the ABM Treaty to claim a seat at the security table with the U.S.

because our partnership against terrorism brings that. For some time Russian experts have recognized that the ABM Treaty is of little practical value to Russian

security, and its importance was its leverage with the U.S. to prevent us dismissing

Russia. Without that benefit needed, it becomes easy to compromise on the treaty

in favor of partnership, cooperation, and more important issues.

Second, Russia has significantly downplayed the argument that the war in

Chechnya is a purely internal matter. Indeed, the main thrust of Russian policy is

that the war there is a manifestation of international terrorism, akin to the September attacks in New York and Washington. Russia is not taking this position to

welcome international involvement, of course, but to gain U.S. support for its policies against the separatists. The important point here is that in emphasizing the

international linkage Russia is downplaying the ‘‘internal matter’’ warning, potentially eroding the effectiveness of its solidarity with China on the Taiwan issue. The

point is not that Russia will now say that Taiwan is an international matter, but

that it will be less likely to expend diplomatic effort helping China to make the case.

The Chechnya/Taiwan link is less valuable to Russia, and less useful to China.

In addition, China becomes less important for managing Central Asian security,

and terrorism in the region. Why bother with the Shanghai Six when the important

and effective alignment of states is the U.S., Russia, Uzbekistan, Tajikistan, and

Kazakhstan? This does not mean that Russia needs to provoke China, and indeed

just this week a joint Russian-Kazakh-Kyrgyz-Tajik team announced reductions in

Russian troop and equipment numbers on the Chinese border to comply with limits

agreed upon in 1995–1997 agreements on confidence-building measures and arms

reductions. Regional security cooperation with China remains in Russia’s interests.

But the difference is that now Russia does not approach the relationship from the

same position of weakness as before 9/11.

In contrast, the economic issues and incentives in Russian policy on China by no

means disappear. The same logic that made China an important market for Russian

arms holds. We are unlikely to see Russia pull back from that relationship, precisely

because it was not driven primarily by strategic or geopolitical concerns arising from

poor relations with the U.S., but from the domestic economic stringencies and priorities I have described.

Indeed, we may even see a renewed emphasis on foreign arms markets as a result

of Putin’s recently announced renewed emphasis on defense reform. Putin said this

week that the problem of defense reform involves ‘‘both the progress of reform and

the armed forces’ provision with up-to-date equipment and hardware’’ meaning that

the logic behind supporting defense enterprises vital to the expected modernization

is strengthened. (Interfax, 12 November 2001) We should not expect a slackening

of the Russian-Chinese arms sales relationship.

Similarly, Russia will remain interested in China as an energy export market,

and in potential Chinese investment in its Far East energy resources. In fact, if

50

there is a reduction in global demand due to recession, China could become more

important if its own growth and growing demands are not too badly depressed by

a global slowdown.

It is important for us to understand this constant element in the Russian-Chinese

relationship so that we are not surprised by it, and so we understand it is not inconsistent with Putin’s overall objectives and decision to support counterterrorism.

The next stage of the fight against terrorism also creates interesting prospects for

change in Russia’s Far East relationships. If the international community decides

to launch a major reconstruction and development project for Afghanistan, China is

unlikely to have a major say in the arrangements, since it has not played a role

in the military operations of intelligence component of the campaign. It will have

some say as a permanent member of the UN Security Council, but compared to Russia may have little in the way of assets to bring to the effort.

Japan is more likely to play a more substantial and long-term role in post conflict

reconstruction, and its involvement may be a mechanism for closer cooperation with

Russia. Japan is already active in Central Asia, in international assistance efforts,

and in logistics support for U.S. military operations in the region.

The economic relationship with Russia remains more uncertain, and could take

a problematic turn if Japan’s economic troubles continue or worsen, reducing its demand for energy and therefore incentives to develop an energy trade and investment

relationship with Russia. The lack of incentive of an improving economic and trade

relationship with Japan may soften Putin’s interest in solving the Kuriles Islands

problem by going further in the direction of compromise with Japan’s position, especially at a time when Putin already faces domestic questioning of his foreign policy,

and in particular faces the likely prospect of NATO enlargement next year. Unless

the U.S. were to play a more active role in resolving the dispute as part of a general

effort to improve relations among our diverse counterterrorism allies, it is difficult

to see where new incentives to resolve this problem come from.

Finally, does the fight against terrorism and Russia’s active cooperation have implications for Korea? With improvement in U.S.-Russian relations and potential

compromise on the ABM Treaty and missile defense, it becomes less important for

Putin to insist that North Korea is a responsible international actor in order to undermine U.S. missile defense claims. If that is the case, then the liabilities of the

continuing division of Korea and the instability created by the failures of the north’s

regime could become worth shedding, from Putin’s perspective. That must be balanced against concern of further destabilizing the regime, and the fear of prompting

it to irresponsible action, but it does not seem compatible with a newly confident

Russia returned to importance on the world stage in its relationship with the U.S.

to play hostage to North Korea.

Russia has already reduced it ties to Cuba by deciding to close its base at

Lourdes. Is North Korea next as one of the vestiges of the Cold War that 9/11 and

its effects prompt Putin’s Russia to shed?

Mr. LEACH. Thank you very much, Ms. Wallander.

Mr. Faleomavaega?

Mr. FALEOMAVAEGA. Mr. Chairman, with all that said, I say

amen. I do not know where to start given the tremendous amount

of knowledge and expertise that has been brought before our Subcommittee this afternoon. It is certainly good for starters in terms

of establishing a dialogue and there are just a couple of questions

I wanted to ask members of our panel and also Mr. Glosserman

from Hawaii, as we all envy him. I sense that he keeps reminding

us he is calling from Hawaii, where the temperature there is probably about 82, 83 degrees.

I wanted to start with Ms. Wallander’s statements and some of

her observations. One thing that I find curious, at least of all the

members of our panel here, no one ever made any comments about

Indonesia, Thailand, the Philippines and Malaysia. Are they out of

the picture?

Mr. LEACH. This is Northeast Asia.

Mr. FALEOMAVAEGA. This is Northeast Asia, so we will cover

Southeast Asia some other time. Okay.

51

Let us start with Russia, as you had commented earlier, Ms.

Wallander, in terms of Russia’s standing and the friendship that

has now been established by obviously President Bush and President Putin. When viewing Russia, the question of Chechnya always

comes into focus and, of course, the People’s Republic of China is

confronted not only with Taiwan but also Tibet. As a comparison,

to view populations as a factor as well, I think the Russian Republic now has about 145 million people to 1.2 billion that President

Jiang Zemin is still having problems with administratively.

I have never considered Russia really as part of this equation,

when dealing with China and Japan. It has been my understanding

that Russia leaned toward the Western European context of influence and culture, whether it be with western European or the East

European countries. Do you think that because of this, Russia is

having a much easier time of collaborating with the United States

as compared to China?

Because I think the issues also are not only unrelated but the

magnitude in terms of some of the things that they cover are quite

different. Chinese President Zemin may be well-versed with the

English language, but I do not know if he likes to ride horses at

President Bush’s ranch. I do not know if he was ever invited by

President Bush to go to his ranch in Texas. A little social interaction like that also has, in my personal opinion, serious implications. How the public perceives this, where maybe President Jiang

Zemin would prefer having a Chinese meal in the evening rather

than going out for a barbecue, I do not know.

But I wanted to ask you that it is quite obvious that President

Putin’s initiatives since the tragedy of September 11th have really

cast Russia in a more positive role and we are naturally taken by

this because we are looking for supporters out there. I do not know

what the latest count is in terms of those countries who are with

us, countries who are logistically supporting us in this effort, in

combatting international terrorism. I have to totally agree with you

that President Putin made a stroke of genius here in coming to

help us in any way possible.

Do you suspect that Japan’s initiative as well could be just as

comparable? Because I consider sending a several hundred-member

military force a major, major change, possibly even unconstitutional in my humble opinion, as the Japanese, in the last 50 years,

have always insisted they cannot in any way use combat or military forces except for self defense.

How do you compare the importance of Japan’s willingness to do

this, which seems to me to be a major change in the whole foreign

policy dynamic in this region of the world, as compared to the ABM

negotiations now going on between Russia and our country?

Ms. WALLANDER. Well, thank you. I think that the scope of your

question shows how incredibly volatile—in a good sense—the volatile time we are in and the opportunities that are presented, not

just by the tragedies but also the responsible and constructive responses of a lot of countries in cooperating with the United States.

I will not claim to be able to answer specifically on the Japan

issue other than to point out that it seems to me that in order for

states to cooperate they always have to bring something to the

table, and one of the problems in the Russia-Japan relationship

52

over the last decade is it is not clear that either country was willing to bring things to the table on which you could then cooperate.

And it is not nearly the Northern Islands issue was the obstacle,

that is sort of been a convenient scapegoat for other problems.

Part of the problem has been that the Russians have not been

able to bring to the table a positive investment environment to be

able to argue to the Japanese that they should be looking at region.

Part of the problem is that any movement in that relationship

always had to deal to a certain extent with suspicion from—not

suspicion, concern from other countries, regional powers, China,

but also the United States. So by cooperating in Central Asia, by

focusing on the potential for energy development, both Russia and

Japan may be bringing enough now to the table that they can work

on, but they may need American diplomatic support for those countries to see that that is something that is supported and viewed as

being also something that they bring to the table cooperating with

us.

So we need to be thinking—and I need not point this out to this

Committee dealing with this region of the world, we need to be

thinking beyond the bilateral relationships to trilateral or even

multilateral in the area to achieve these opportunities in the areas

that you discussed.

I think I will leave it there because some of the other issues——

Mr. FALEOMAVAEGA. My time is running and I have questions for

the other members of the panel.

I just wanted to state, Mr. Bergsten, that I could not agree with

you more concerning the economic situation in Japan. In terms of

visibility, in terms of any real international recognition of the second most powerful economic power in the world, for 10 years.

Japan has been faced with this recession and I can’t guess how

many hundreds of experts have come up and said this is how you

are going to resolve the problem, and yet the problem remains. I

wanted to ask, Mr. Bergsten, do you think that our own policy

mechanisms are expressing sufficient serious concern about Japan’s

economic standing?

Because I agree with you, if Japan suffers economically, not only

will the whole Asia-Pacific region go with it, but it definitely has

global implications as well, but somehow I do not think even our

own country seems to sense that Japan’s economic situation is that

important. That is my sense or impression and please correct me

if I am wrong, Mr. Bergsten.

Mr. BERGSTEN. I think you are correct, that we should in fact be

pressing Japan a bit harder than we are now to deal with the problem of its financial system, both to contribute to a recovery from

the synchronized global recession and to avoid the kind of financial

implosion and crisis that I talked about.

It is tricky to draw the line as to how we can best do that. I just

published a book 2 months ago called, No More Bashing, which

agrees with Mr. Glosserman was saying, that it is demonstrably

not productive these days to be publicly haranguing Japan. That

was tried by the previous Administration and it often led to a backlash and a failure of our efforts.

53

On the other hand, I think 9/11 actually offers an opportunity

and here I would differ a bit, I guess, from what Mr. Glosserman

was saying.

Far from regarding U.S. pressing on this issue as ingratitude for

what the Japanese have done on the security side, I would view it

as consistent with what we have asked them to do on the security

side because the impact of 9/11, while obviously much more dramatic and much more of a priority, also had an economic dimension.

As I mentioned, it pushed the world economy into recession, it

pushed our economy into recession. If we fail to deal with the economic dimension of the response to 9/11, we have failed in an important part of the reaction. We have been very skillful, I think,

in putting together a multilateral coalition on the security side, but

we should be equally aggressive in pressing for an international response on the economic side.

That means pushing the Europeans to be more aggressive in getting out of their doldrums, but it particularly means working with

Japan to help them overcome their debilitating problem that has

lasted for a decade.

As I mentioned in my opening remarks, Prime Minister Koizumi

demonstrated enormous courage and used the 9/11 situation to

overcome some of these longstanding political sensitivities in Japan

regarding its security role. I would hope that he could use the economic dimension of 9/11 to also recognize political sensitivities and

economic difficulties in dealing with their financial and economic

problems that have been so debilitating for a decade.

I happen to think it would actually redound to his political favor.

It would be tough to do the kind of full-scale workout of the banking system that is required, but if he did it, I am quite confident

the Japanese markets would soar and his political popularity

would soar because for the first time in 10 years there would be

light at the end of the tunnel.

It would take another year or so to work through to get that, but

for the first time in a decade, there literally would be some hope.

And if they fail to do it, they are either going to continue to muddle for another decade or, even worse, have a severe crisis that is

going to be enormously adverse primarily for the Japanese, but for

the world economy as well.

So I really do believe that the skill that the Prime Minister

showed in dealing with the security dimension of 9/11 could equally

be deployed on the economic side and then give him a 10-strike, or

at least a 2-strike, and improve the situation enormously for all of

our interests.

Mr. FALEOMAVAEGA. Mr. Chairman, I think my time is up. I will

pass for now.

Mr. LEACH. Thank you very much.

Mr. FALEOMAVAEGA. I did not mean to pass our other friends

here, I have some questions, too, but I will pass.

Mr. LEACH. Thank you, sir. Several other witnesses have indicated that they want to leave by five.

Let me begin just a little bit with Dr. Bergsten, who has made

another case for fast track, the notion that if we do not move in

a multilateral direction other parts of the world will move in reVerDate 11-MAY-2000 16:20 Jan 24, 2002 Jkt 076190 PO 00000 Frm 00057 Fmt 6633 Sfmt 6601 F:\WORK\EAP\111501\76190 HINTREL1 PsN: HINTREL1
54

gional directions which will box the United States out of markets.

Is that your case?

Mr. BERGSTEN. That is, I think, a very important dimension of

the case.

Mr. LEACH. And you have done macro economic modeling that indicates that—— Mr. BERGSTEN. Yes. We have an analysis of about 30 permutations on these regional and bilateral deals, each of which indicate

the effects thereof on all the major players, including the United

States. Singapore and New Zealand do not hurt as much, but an

East Asia free trade agreement would hurt us a lot.

Mr. LEACH. And you will leave that book with us, you will not

keep it classified?

Mr. BERGSTEN. I will commend it to your bedtime reading, Mr.

Chairman.

Mr. LEACH. Well, thank you.

One aspect of the Japanese banking system issue, though, that

I just want to press, in one sense, it is extraordinary that a system

that has elements of bankruptcy can continue because the Bank of

Japan backs it and so they have a mechanism for insolvent institutions to maintain their wherewithal to operate.

I am told anecdotally by competitors of the Japanese banks that

we are not dealing simply with a system that has a large hole that

has to be filled, but that it is a system that increases the size of

the hole with their general lending decisions on a daily basis and

that that is one of the dilemmas that has to be dealt with.

In addition, it strikes me that part of the lending decisions that

are made are of a ‘‘political’’ nature rather than economic nature,

which means that non-economic lending creates disequilibrium in

industries which can put to disadvantage the institutions as well

as economic sectors within the country and the rest of the world.

To bring semblance to orderly growth, one wants to have economic

lending decisions so that those decisions are rooted in real market

demands. Otherwise, we will continue to develop, particularly in

Asia, a great deal of over capacity in many different industrial sectors that are rooted in lending decisions that have been rather

loose. So it is to put discipline into the banking system that one

wants to have market oriented banks.

Is that a fair analysis?

Mr. BERGSTEN. I think it is a perfectly accurate analysis on both

your major points. The first one is absolutely correct that the

amount of non-performing loans keeps rising. The whole Japanese

strategy, modeled somewhat on what we did when our banks ran

into lesser difficulties in the early 1980s and again in the early

1990s, was to try to gradually work down the non-performing loans

out of bank profits.

The problem is that the Japanese economy has been growing so

slowly, if at all, that there have not been many bank profits. So,

whatever they have been able to pay off from that side has been

more than offset by further increases in the non-performing loans.

And therefore the capital position of the banks has been further

impaired to a point where, as I said at the outset, roughly half the

banking system is probably bankrupt on any normal accounting

standards. The point being that until they come to grips with the

55

heart of the problem and enable their economy to start growing

again, the difficulties will spiral downward and get worse and

worse and at some point it will lead to a really major crisis, but

at a minimum it condemns the country to continued stagnation.

On your second point, again, exactly right. And there is, of

course, a major political tie-in. A lot of the bank lending has been

to construction companies who get contracts from the government,

turn around and make big political contributions and it is a circular system which is bad in both economic and political terms, at

least as we would normally view it.

That makes it more difficult to deal with the banking problem

at its head, but, again, indicates the likelihood that the loan portfolios of the banks will continue to worsen until they do something

really fundamental about the difficulties.

Mr. GLOSSERMAN. Mr. Chairman, could I interject?

Mr. LEACH. Yes. Yes. Please go ahead.

Mr. GLOSSERMAN. It occurs to me that the problem goes even beyond that. I mean, not only is it a question of bad loans, but the

fact of the matter is that the bankers themselves do not know how

to make loans, they do not know how to assess credit risk, it has

never been an issue for them.

Moreover, even when they are willing to look skeptically, they

are not willing or able to insert a new incentive structure within

the management of the companies that have taken the loans. Consequently, even if you recapitalize the banks, I do not see that as

necessarily solving the deep rooted problems of creating a different

sort of incentive structure among the management of Japanese

companies.

I think that it is indicative of the enormity of the problems that

Japan faces that there is really no easy fix on any of these matters

and that as much as the Japanese banks need to probably be renationalized, a very drastic solution that is probably the only one,

it is going to go far, far deeper than that and require much, much

more.

The ultimate cost is going to be extreme adjustment on the part

of Japanese society and what you can call its politics, but it is considerably more to look at than perhaps a doubling of their unemployment rates and no prime minister, no government really wants

to look at that.

Mr. BERGSTEN. And, Mr. Chairman, could I just add, I agree that

there is a very fundamental problem with the way the Japanese

banking system is staffed and managed. That does suggest that

part of the remedy, if they were willing to do it, would be more foreign investment. When they do try to clean up the banking system,

instead of solely nationalizing the banks by government recapitalization, if they would permit foreign financial firms to take over or

at least play a major role in restructuring the banking system, it

would help deal with this problem of management and staffing.

However, there is bad news on that front, too. They did that recently with one major bank, now called Shinsei, a foreign consortium based here in the United States with Paul Volker much involved, bought a failing major Japanese financial institution on the

promise from the Japanese authority that it would be able to run

the institution like a bank. Yet just a few months ago the financial

56

services agency, the regulatory agency in Japan, essentially instructed the management of that bank to resume making loans to

unprofitable borrowers on the excuse that they should keep funding

small and medium size enterprises but really to keep lending to

firms that did not merit loans on normal bankable criteria.

So, even in a case where they screw up their courage, permit a

foreign firm to come in and take over a big bank, they have been

unwilling, at least to this point, to permit it to really operate like

a true bank.

So I agree with the basic point that Brad makes and the need

to change the whole culture of the banking system in Japan as well

as to restore its capital base.

Mr. LEACH. I do not want to dwell too long on this, but there are

several things I would like to just comment slightly on. One, there

was a reference to our problems in the 1980s in the banking system. We had no banking problems in the 1980s, we had a savings

and loan problem. And the interesting aspect of that is it was basically an interest rate mismatch, not an asset problem. Japan has

asset problems rather than interest rate problems, but it underscores that they have the most advantageous interest rate circumstance of any banking system I have ever seen. But if they ever

also had an interest rate dilemma to go with their asset problem,

it would be quantumly more difficult circumstance and that could

conceivably occur, although most of us are looking at dis-inflation

rather than inflation.

The second point is in terms of staffing, interestingly Japanese

banks make loans on a dollar volume like five or six times per staff

the member of a typical American size bank of comparable size.

And so actually what the need is more people to give analysis, not

fewer, and so to some degree they have a problem of not enough

people, that they need a little more inefficiency in the system in

order to be more prudential. And that is just a possibility.

Let me just turn now to Ms. Wallander.

I have never known a circumstance in which the thought that in

bad news there can be a good news is more extraordinarily evident

than in the U.S-Russia relationship today. That is, we are seeing

new breaches in the world order that may be incredibly significant

in some parts of the world with the 9/11 problem. And yet with

Russia, we are seeing new bridges that seem to me to be psychologically of a deeper potential nature than many in America had

even contemplated. That is, over much of the 20th century we had

some real rifts with Russia, we had a turnaround with the Cold

War coming to an end and it looked like a little movement in our

favor, then this corrupted capitalism took over and we had this circumstance in the Balkans where everyone in Russia was against

us.

Suddenly in the shortest time period I have ever seen in a country, people of the average citizen level are looking more sympathetically to the United States and they are looking much more

sympathetically to Russian leadership dealing with the West in a

more compatible way, and it is almost as if the internationalization

of an American problem is opening up Russia to being more positive to America.

57

I have a friend who returned a couple of weeks ago who saw a

drunk coming at him down the street in Moscow and he said, ‘‘Oh,

gosh.’’

And this guy comes up and grabs his lapel and says, ‘‘You American?’’

And the guy acknowledges and he said, ‘‘Well, in the Civil War,

we were with you. World War I, we were with you. World War II,

we were with you. Now it’s like FDR and Uncle Joe all over again.’’

But it was an attitudinal expression from the man on the street

that was rather extraordinary. And, frankly, sometimes in closed

societies people at the top are more constrained by public opinion

than those in open societies because in open societies you have

processes that make a dissenting opinion respectable and acceptable. In closed societies, sometimes when leaders move against

mass feeling, they are very vulnerable.

And I have the sense that Putin is acting in a much more open

way to America in partial measure because the Russian people are

much more open to America in the last 2 months than they have

been at any time possibly in the 20th century other than, of course,

the years in World War II when we were allies.

But this is something that we have to take advantage of and

there are many different ways and techniques, but I think it is

something that our populous is going to have to think through, too,

as well as our leadership, that maybe this terrible, terrible news

that we are dealing with can be used progressively in the RussianAmerican relationship.

Now, does that make sense to you or not?

Ms. WALLANDER. I think it does make sense and thank you for

pointing out the social and societal level aspect of it. The poll numbers in Russia are incredible. The poll numbers are strong against

Russian combat involvement in Afghanistan for reasons related to

their history and also I think a healthy view of Russian society of

what is going on in Chechnya in a strange sort of way, but the support for the U.S. operations and, as you point out so well, the sympathy and solidarity of views is coming up strongly in poll numbers

and it was not just a blip after the attack, it has remained strong

and, in some cases, has gone higher, especially the support for U.S.

operations. And, frankly, some other countries in the world, they

tend to question the U.S. operations over time.

So it is an opportunity and by fate the summit could not have

come at a better time because those kinds of summits do focus societal interests and attention to our human opportunity and cooperation and I think that President Bush and President Putin are to

be commended for going with that and I think it could solidify that

trend that you identified in Russian society.

Mr. LEACH. I just feel obligated to say that as the President of

the United States and the head of state of Russia come together

to make certain kinds of arrangements, it is noted by the Congress

and this Congress has an obligation to reflect respect for Russian

decision making and to think in new terms of ways that we can be

helpful to Russian society and I think that is a mutual obligation

that has to be noted.

58

Ms. Glaser, you mentioned the extent to which China is providing some sorts of assistance, one of a humanitarian nature, but

then, secondly, of intelligence and other natures.

Do you sense any shift in Chinese feeling toward America based

on this or is it more or less the status quo but the Chinese government itself is being somewhat helpful?

Ms. GLASER. I think that this was an opportunity that the Chinese government was looking for, an opportunity to mute its differences with the United States, to really get beyond the EP–3 incident, the other difficulties in the relationship, to persuade the

Bush Administration, which they perceive saw China as the next

enemy, the next Soviet Union, that we are building our forces

against, that China did not seek to replace the Soviet Union, did

not want to be that enemy. And so they have, I think, very adeptly

and in a way that contrasts rather differently, positively, with their

past record, responded almost immediately. I believe that Jiang

Zemin was the second leader to phone President Bush after President Putin to express his condolences and very quickly sought to

find ways to cooperate with the United States and the United Nations in forging the resolutions and work very closely with the U.S.

So I think that this is something that they really have been looking for. They have been adept at taking advantage of it.

The question in my mind is whether it can be sustained. There

are, as I said, a lot of common interests here in combatting terrorism, but there are also these other persisting problems in the relationship, concerns that the United States continues to have. And

so I think it is incumbent upon the Chinese government to really

seek to work with us in those areas as well and I think proliferation probably is at the top of that list.

What was perhaps up to now a somewhat intangible threat that

was just potential is now quite realistic, the spread of possible

chemical weapons, biological weapons that could be used not just

against the United States but against people all over the world and

so curbing the proliferations of weapons of mass destruction has

become a very important issue and I hope that the Chinese government will move forward in this area.

I think that in a sense if you were to use a metaphor which I

borrow from a friend and colleague of mine, Doug Paal, of a river

in which you have rocks that are very hazardous as you are seeking to traverse the river, but in certain seasons you get more water

in the river and so you can therefore navigate more smoothly. The

Chinese need to find ways to keep that water level up, but inevitably the water is likely to go down and those rocks are going to

re-emerge and so I think what the Chinese need to do is to figure

out a way to remove some of them so that we can continue to navigate more smoothly.

There are obviously areas in which we do have common security

interests with China and we can continue to work on those while

seeking to narrow our differences.

Mr. LEACH. Let me just interrupt you just for a second, just for

a judgment.

I would like, Mr. Cha, if you would comment, too,

59

My sense is Chinese leadership is handling this impressively, but

my sense also is that there has been a real shift in Russian popular

feeling. I sense no shift in Chinese popular feeling.

Do you believe there is or is not? And in which direction, if there

is a shift?

Ms. GLASER. Mr. Chairman, that is exactly one of the points that

I made in my opening remarks and that I find rather worrisome.

I think that the Chinese public has for a long time been very concerned about what they see as U.S. policies that are aimed at

them. They have been worried about U.S. intentions and they have

obviously not been given the full range of information about some

of the events that have taken place such as the 1999 embassy

bombing and also the EP–3 incident.

There is a rising sense of nationalism and anti-Americanism in

China that I do believe is very worrisome and I think that it is important for the Chinese government to educate its people more and

perhaps more exchanges between the two sides in non-governmental areas could serve to address some of those attitudes.

Mr. LEACH. Well, I appreciate that. And the only reason I stress

it, that one certainly has a sense in the EP–3 incident that the Chinese government was constrained by the populous to more than a

small extent so then one of the great questions is how do you get

popular shifts in view.

Mr. Cha, do you want to comment on this?

Mr. CHA. Well, I think it is more on the larger point which is,

I think, Mr. Chairman, where you are going. What we see in Russia and China, particularly looking at Russia and China, since that

is the topic of discussion, is initially sort of these pragmatic responses to the particular situation at hand and the question of

whether there is a direction there for U.S. foreign policy or a new

strategy that can be built on that greatly depends on this underlying attitudinal change, as you mentioned, Mr. Chairman, that is

somewhat evident in Russia and less evident in China. If you do

not have that attitudinal change, then it becomes much harder

from the U.S. perspective to build sort of the foundation of a new

strategy with the country if that attitudinal change is not evident.

Mr. LEACH. Okay. Let me turn now to attitudinal change and the

subject you testified on, Korea. One has a sense that after a very

powerful and popular attitudinal beginning for Kim Dae-jung that

he has slipped dramatically in the last year.

Is there any prospect that before he leaves office that there will

be a reciprocal visit from the north to the south?

Mr. CHA. I think you are right in your observation of Kim Daejung’s popularity. I mean, he was someone who—he has gone

through phases. He came into office with a mandate from the people to deal with the Asian financial crisis and that was what people

thought he would be remembered for and, of course, that did not

work out.

As Brad mentioned, his next watershed event was the improvement of relations with Japan and that sort of has not gone well.

So what we are left with is the sunshine policy and, frankly, time

is not only running out for him, but the tools that he can employ

to entice Kim Jong-Il to come for a return visit, he is also losing

control of. The South Koreas had a by election in October in which

60

they lost basically any chance of a majority in the legislature and

the opposition now is trying to pass legislation that would greatly

curtail the discretionary funds that Kim Dae-jung might be able to

use to engage with the north and bring Kim Jong-il south. So I

think the time really is running out for him.

I think one important larger point, though, is that regardless of

how the sunshine policy ends up, it is going to be remembered in

South Korean politics, I think, as something that was very effective

at widening the domestic political spectrum on views on North

Korea. Prior to the sunshine policy, the spectrum was quite narrow, as you can imagine, and anybody who even hinted at any sort

of non-zero sum relationship with the north was just branded as

a traitor, a communist and basically it was also illegal. And now

it is politically legitimate, I think, in the south to talk about some

form of engagement with the north, maybe not the sort of engagement that Kim Dae-jung implemented, one that was non-reciprocal

based, very much open-ended, but one that is much more specific

and I think that in a future Administration in South Korea you

will still see engagement, but it will be one that will be much more

conditional than the sunshine policy was.

Mr. LEACH. Well, thank you very much.

Mr. Glosserman, thank you for joining us from afar.

We want to thank you all for very thoughtful testimony. I apologize, we ended up competing with a State Department review for

the entire House of the war in Afghanistan and so it caused our

Members to be sidetracked, but thank you for your testimony and

I will make sure that everything is circulated to the full Membership.

The Committee is adjourned.

[Whereupon, at 5:17 p.m., the Subcommittee was adjourned.]

Æ