Throughout the dramatic year of 1989 the highly militaristic and secretive Hermit Kingdom of North Korea remained apparently unaffected and apart.  Rather than follow the lead of his one-time Soviet patron in adopting glasnost and perestroika, Pyongyang's "Great Leader," Kim Il-sung, withdrew North Korean students from Eastern Europe in order to contain the freedom virus and moved closer to China's gerontocracy, a regime which used bullets to retain power.

Two years later, little has changed on the surface.  North Korea's million-man military remains arrayed for war north of the Demilitarized Zone and Pyongyang appears dedicated to building a nuclear weapon.  Joint Chiefs of Staff Chairman Colin Powell recently opined that he was down to just two "demons" to justify the Pentagon's budget: Kim and Fidel Castro.  The Bush administration is resisting pressure to accelerate troop cuts on the peninsula--now set at 7,000 out of 43,000 by 1993--and Secretary of State James Baker has attempted to discourage the ASEAN countries from organizing regional meetings on security issues for fear of weakening America's bilateral ties in East Asia.  "We ought to be careful about changing [existing arrangements]," he cautioned in response to proposals that Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand integrate their economic and security planning independently of the United States.

Yet even the obvious threat posed by the North's potent military cannot obscure signs of a thaw on the peninsula.  Last fall North and South Korean officials met formally for the first time in forty years and began negotiations on a non-aggression treaty; a spokesman for Pyongyang stated that "the two sides laid the foundation for expanded dialogue by fully presenting their positions."  Although North Korea (the Democratic People's Republic of Korea) canceled the February meeting between the two nations' prime ministers and has continued its sharp rhetorical attacks on the South, the two countries recently agreed to restart the talks.  Moreover, other contacts between the two countries are expanding.

Indirect trade between them ran to $127 million in the first half of 1991 and in July the two governments agreed to their first direct deal, with South Korea (the Republic of Korea) exchanging rice for cement and coal.  While the North limited the size of Seoul's delegation to an inter-Korea parliamentary meeting earlier this year in a fit of pique over U.S.-ROK military exercises, the conference was still held.  More recently the two Koreas fielded a joint table tennis team and a joint youth soccer team which competed in their respective world championships.  The two governments are now discussing the team for the 1992 Summer Olympics and joint sponsorship of the 1993 World Table Tennis Championships.

Even more significant is the fact that both North and South Korea appear poised to join the United Nations.  The South has long wanted to enter the international body, but the North, arguing that separate memberships would reinforce the peninsula's division, instead advocated a joint seat.  Until now the North was backed by the veto power of its two allies, China and the USSR, since the Security Council must approve all applications.  However, Moscow's official recognition of South Korea last year removed the threat of a Soviet veto of ROK membership.  More recently Beijing opened a trade office in Seoul and apparently told Pyongyang that it would no longer block South Korea's application.  To avoid almost total isolation, the North now says it will apply for its own seat.

The weakening support from its main communist allies further isolates the DPRK, which maintains diplomatic relations with just 105 states, compared with 148 for Seoul (90 recognize both countries).  Pyongyang has recently closed its embassies in a dozen African nations, probably for economic reasons.  To compensate, the North has begun searching for new friends.  Pyongyang recently agreed to establish diplomatic relations with the Philippines and end its aid to the communist guerrillas there, and is also negotiating with Japan over formal recognition and financial aid.  Although the discussions have so far achieved little, foundering over Pyongyang's demand for billions in aid and its refusal to allow international inspection of its nuclear facilities, the mere fact that the North is talking to its one-time colonial master demonstrates that important changes are occurring.

North Korea, which now hosts some fifty-three joint ventures, is trying to expand its international economic ties.  Its Kumgangsan Airline has begun flying to Hong Kong and Japan and the airline's chairman recently suggested inaugurating direct air service with Taiwan as well.  The DPRK is also proposing to export coal, gold, uranium, and zinc to Japan.

Under virtually unanimous international pressure, including from China and the USSR (which has been particularly blunt, threatening to halt shipments of nuclear fuel and technology), North Korea may be preparing to accept UN inspection of its nuclear facilities.  The International Atomic Energy Agency says that North Korean officials have agreed to allow inspections, though the formal pact has yet to be signed.  North Korea's special envoy, Ambassador Jun Chung-guk, too, has said that his nation intends to fulfill its responsibilities under the Non-Proliferation Treaty, which it signed in 1985.  However, Pyongyang has been simultaneously pushing to include inspections of U.S. facilities in the South that allegedly contain tactical nuclear weapons (as well as demanding that Washington promise not to use such weapons against the North), and it is not clear whether North Korea regards such a step to be a precondition to accepting oversight on its own territory.  The DPRK's latest proposal is for a nuclear-free peninsula guaranteed by China, the United States, and the Soviet Union.

There even seems to be interest in warming relations with the United States.  In an interview with a Japanese newspaper, Kim Il-sung observed that "if we can resolve the difficult problems affecting North Korean-U.S. relations, it will help smooth out differences in our relations with Japan."  Pyongyang recently returned the remains of several U.S. soldiers and said it would aid Washington in searching for the remains of 9,000 other MIAs.  The North Korean UN mission is also circulating a brochure encouraging foreign investment, citing their country's willingness to allow "full and tax-free remittance of all dividends and capital."  Pyongyang has accepted an invitation from the U.S. Soccer Federation to play in America.  The North Koreans are also expected to send a gymnastics team to compete in the World Gymnastics Championships, to be held in the United States in the fall.  Until now teams from the North and the United States have competed only on "neutral" ground.  As a spokesman at the South Korean embassy observed, "It's an indication that North Korea is attempting to break out of its self-imposed isolation and is trying to adapt to the external changes that have taken place around its borders."

It may well be that there exists in Pyongyang what the Carnegie Endowment's Selig Harrison has called a "policy struggle" between hardline traditionalists and more moderate technocrats.  As far as we know, no one has formally challenged Kim's hold on power, though Pyongyang radio recently denounced "impure elements who tried to damage the clean tradition of the revolution by Kim Il-sung."  But at least some officials seem genuinely to want their country to rejoin the international community.

Cold War Creations

These changes are particularly welcome because the policies of the two Koreas have reflected unremitting enmity for more than four decades.  Indeed, today's problems go back to Japan's defeat in 1945 and the subsequent division of Korea (a Japanese colony for thirty-five years) between the United States and USSR.  The division was meant to be temporary, but the peninsula nation, like Germany, was a victim of the onset of the Cold War.  Two opposing regimes, the Northern one ruled by former anti-Japanese guerrilla Kim Il-sung and the southern controlled by longtime nationalist Syngman Rhee, arose.  Both claimed to be the legitimate government for the entire peninsula and both encouraged incessant border incidents.  While the United States refused to provide Rhee with heavy weapons lest he make good on his promise to march north to recover the "lost territories," the Soviet Union was less worried about the possibility of conflict, and on June 25, 1950, Pyongyang launched its war of conquest.

The United States intervened, soon followed by China.  The see-saw war essentially settled back where the conflict had begun, and an armistice was signed by all but South Korea on July 27, 1953.  A defense treaty between the United States and the ROK was ratified the following year.  But no final peace was ever negotiated, leaving a perpetual state of cold war that occasionally flared up with vicious firefights along the DMZ.  China withdrew its forces in 1958, but 43,000 U.S. troops still remain, backed by ample air and naval forces and, it is thought, tactical nuclear weapons.

The main purpose of the American presence was always to deter another North Korean attack.  In its early days the ROK was poorer, more unstable, and less well armed than its Northern antagonist.  By most accounts, however, Seoul overtook Pyongyang economically in the 1970s.  Today the ROK's per capita GNP is roughly $6,300, thought to be more than five times that of the North (though reliable figures for the latter are hard to come by).  Given a South Korean population that is double the North's, Seoul boasts an economic edge that likely exceeds eleven-to-one.

This broad measure probably underestimates the South's advantage.  Seoul enjoyed double-digit growth rates in the late 1980s and even now is growing at a rate of 9.5 percent, the highest growth rate in Asia, and much faster, with a larger base, than the North (whose economy, at best, has been expanding at about 2 percent a year--though some Soviet economists maintain that the North's output actually fell by 5 percent last year).  In the North, few buses run because of gasoline shortages, lights are turned off to save energy, and rice rations have been sharply reduced.  The South has a vast technological lead--competing successfully in world auto and computer markets, for instance--and an ability to borrow internationally.  The North's industry is quite primitive in comparison and its decision to welsh on nearly $800 million in foreign debt has made it persona non grata in global capital markets; not surprisingly, Pyongyang's trade has actually been shrinking in recent years.

The Power of the Purse

The ROK's economic prowess has ended the pariah political status it suffered two decades ago and has even attracted the attention of both the USSR and China.  The former began cultivating economic ties with the South during the 1988 Olympics, which was attended by all but the most ideologically driven regimes like Albania and Ethiopia.  Seoul is now extending credits and promising aid to Moscow.  In return, the Soviet Union has formally recognized South Korea, apologized for shooting down the Korean airliner in 1983, promised high technology transfers (including nuclear energy) and offered to sign a treaty of amity and cooperation with the ROK.

When Mikhail Gorbachev and Roh Tae-woo recently met in South Korea--no Soviet leader had ever before visited either South or North Korea--Roh agreed to release $800 million in trade credits to the Soviet Union and back private investment plans by Hyundai and other firms.  Trade between the two countries ran to $900 million last year and is expected to hit $1.5 billion this year.  Projections for 1995 run as high as $10 billion.

At the same time relations between Moscow and Pyongyang have cooled.  Moscow's recognition of Seoul was a bitter pill for the North, but the end of Soviet aid to them may be more significant.  The USSR has stopped its subsidized cotton, oil, and steel shipments to them and is now demanding hard currency for its exports.  Advanced new military transfers seem unlikely.

Relations between Beijing and Seoul are also warming.  Earlier this year Beijing exchanged commercial offices with Seoul over Pyongyang's objections.  Trade between the ROK and China totals about $3.5 billion, more than seven times that between the North and China; in fact, the ROK is China's eighth largest trading partner.

Although the bitter conflict in China in mid-1989 caused Beijing to move closer politically to the North, that shift appears to have had little practical impact.  Chinese officials desire regional stability, and a conflict on the peninsula would dramatically complicate their simultaneous attempts to suppress domestic opposition and encourage foreign investment.  China's economic troubles and increased international isolation have made South Korean investment (already more than $300 million) trade, and assistance even more important.  It is probably for these reasons that China has rejected North Korean requests for more economic and military aid over the last two years and apparently refused to promise a veto of the ROK's UN membership application.  Although China is not yet ready to recognize Seoul, such a step in certainly possible in the near future.  No one expected the Soviets to abandon their Northern ally as fast as they did.

The modest warming of relations between the USSR and China has also benefitted Seoul by reducing Pyongyang's ability to play one communist power against another.  Today neither China nor the Soviet Union feels particularly threatened by the other--in fact, the USSR has cut its troop strength along their mutual border--and therefore neither is willing to pay much for an unpredictable ally whose friendship offers little of practical value.

Stability and Succession

South Korea is also gaining on the North in terms of political stability, even though Seoul's political situation remains fractious.  The struggle within the ruling Democratic Justice Party, a coalition of three formerly competing parties strung together in early 1990, is likely to become more vigorous as Seoul's 1992 presidential election approaches, and growing democracy has done little to eliminate the centrality of "strong men" to the political system.  More than 1,000 political prisoners remain in custody and the government has been particularly tough on labor organizers.  In addition, the South was rocked this spring by the largest student demonstrations since 1987.

Unlike the situation four years ago, however, when widespread resentment of President Chun Doo-hwan's authoritarian rule resulted in a "people power"-type revolution, today the middle class seems basically satisfied.  As a result, the student activists, who in fact represent only a minority of all students, received little support for their demand that President Roh step down.  Apathy turned to disgust after Prime Minister-designate Chung Won-shik was physically assaulted when he went to speak on campus.  In the subsequent local elections, the ruling party was swept to a surprisingly large victory, taking 560 of 866 seats.  All told, President Roh Tae-woo appears to have successfully edged the military away from politics and created a relatively free and stable environment for next year's national elections.

At the same time, the political climate in the North is growing more uncertain.  Kim Il-sung will turn eighty next year and questions grow about the planned succession of his son, "Dear Leader" Kim Jong-il, especially concerning his relationship with older military leaders.  Stories of modernizers battling against traditionalists ring true, though no solid proof of such a struggle exists.  Westerners who have met with younger North Koreans have found them to be curious about the rest of the world and skeptical about what they have been taught.  Pyongyang's tentative openings to noncommunist nations seem likely to increase North Korea's contacts with outsiders, and hence the pressure for change.  Moreover, while the political ground for an upheaval is not as well prepared as it was in East Germany--North Koreans have no access to South Korean television, for instance, while 80 percent of East Germans could view West German stations--the economic crisis in the North is far worse and could help force political change.

The Military Balance

Only in immediately available military strength does the North remain superior to the South.  A large-scale build-up in the late 1960s and 1970s has yielded Pyongyang a numerical lead in most categories of active duty forces.  Its army is also stationed in forward positions along the DMZ, well placed to launch another invasion should Kim Il-sung believe the moment to be propitious.

The ROK is not Kuwait, however--it is not there for the taking.  The mountainous terrain favors the defense, for it would channel Northern tanks into the South's fortifications and obstructions.  Seoul possesses a larger reserve, more modern weapons, better-trained soldiers, and a stronger economy with which to back its military.  Even without the presence of American troops the North would have no certainty of victory if it launched an attack; its doubts in this respect were undoubtedly multiplied and reinforced by the easy triumph of the West's high-tech arms over Iraq's Soviet-style army in the Gulf War.

In so far as South Korean military deficiencies exist, they are largely the result of the American defense guarantee, which has relieved Seoul of the need to further augment its forces.  Seoul spends an unimpressive 4.3 percent of its GNP on defense, down from 6.2 percent in 1981.  Inflation-adjusted military outlays actually fell slightly this year, compared with 5 percent real increases during the 1980s.  With an economy many times the size of its Northern antagonist, Seoul could obviously spend a great deal more to counteract however much Pyongyang commits to the military.

So long as the United States maintains a trigger for military involvement, however, South Korean politicians are under no pressure to expand their forces to cover areas, such as air-to-ground support, now handled by the United States.  Their attitude may be summed up by the comment of one member of the ruling party at the conference of the Council on U.S.-Korean Security in late 1989, when he responded to proposals for additional South Korean military expenditures: "We have needs in health and education that must be met."  That is true, of course, but the ROK is spending money on many projects--such as the development of a commercial satellite launching capability--which seem less important than defense.  And a nation that has promised $3 billion in aid to the essentially bankrupt USSR can not convincingly argue insufficient funds.  The South has firsthand experience with the potentially disastrous costs of military weakness.

In fact, the South Korean government has proclaimed its willingness to "maintain its own defense" by the year 2000.  But there is no reason why it should take so long.  The limited Nixon troop withdrawals at the start of the 1970s spurred a major expansion of the South Korean military: according to the U.S. Arms Control and Disarmament Agency, military spending more than quintupled between 1975 and 1985, going from $1.1 billion to $5.6 billion, and the latest estimate is $7.2 billion in 1988, well above North Korea's $5.8 billion.

What We Should Do

The fact that North Korea is competing in a race that it simply cannot win now seems evident even to Pyongyang.  North Korean officials know that they are losing and therefore want to change the game.  And the United States should help them.  A suitable first step for Washington would be to eliminate restrictions on personal travel to, and non-strategic trade with, North Korea.  There are no better ambassadors for the United States than private individuals engaged in academic, cultural, and economic exchange.  It is not clear that the DPRK has a lot to offer economically, other than the "disciplined" work force described in a new brochure encouraging investment, but simply talking would be useful.

Second, Washington should build on the recent diplomatic meetings (sixteen so far) held in Beijing by encouraging additional discussions between American and North Korean diplomats.  As part of this process, we should press for "cross-recognition" between the two Koreas and the major powers.  Pyongyang has long resisted this step, but then it also long refused to consider dual entry to the UN.  Indeed, we seem to be moving toward a de facto cross-recognition, with the USSR and perhaps Japan recognizing both Koreas.  America and China could offer to complete the process by recognizing the North and South, respectively, a step Pyongyang might find difficult to resist, just as it has yielded to reality on UN membership.

Third, the United States needs to move arms control to the forefront in East Asia.  Particularly important is the question of nuclear weapons.  The DPRK appears to be developing an atomic capability and has yet to formally agree on international inspection of its facilities.  The possibility of a nuclear-armed North disquiets all of its neighbors, which means the United States can cooperate with both China and the Soviet Union to discourage Pyongyang from acquiring atomic weapons.

Friendly persuasion, however, may not be enough.  The USSR has lost much of its leverage on the North and Pyongyang has undoubtedly undertaken its nuclear research program at least in part because of the assumed presence of American tactical nuclear weapons in South Korea.  These weapons are also a source of political discontent in the South, since the United States claims the right to decide whether to use them on Korean soil.  America should withdraw the weapons and challenge the North to respond by opening up its facilities to international inspection.  Of course, the DPRK might find some pretext to back away from its proposal for a nuclear-free peninsula, but the only way to find out is to put it to the test.

South Korean and American officials have so far resisted proposals to pull out the tactical nuclear weapons, and Secretary of State Baker has said that Washington will not link the two issues.  But Pyongyang's fears about the nuclear imbalance are not wholly unreasonable, and the issue may soon become critical.  Although by most estimates a North Korean nuclear weapon seems at least three to five years away, if Pyongyang moves ahead, it will leave the United States and the ROK with three equally unpalatable choices: a permanent Washington nuclear guarantee for Seoul and probably Tokyo; the creation of a South Korean and possibly a Japanese bomb; or a preemptive strike, something recently suggested by South Korean Defense Minister Lee Jong-ku.  As none of these is attractive, North Korea's apparent receptivity to a peaceful solution should be probed.

The changing balance between the two Koreas also provides an opportunity for conventional arms reduction.  Washington and South Korea should jointly develop a plan to phase out American forces.  The South should then announce its willingness to see the U.S. troops leave and suggest that North Korea respond by pulling its troops back from their advanced positions along the DMZ, demobilizing some armored and infantry units, and entering into serious arms reduction talks.  (Dr. Cha Young-koo of the South Korean Institute for Defense Analyses recently proposed a "Limited Deployment Zone" to reduce the number of troops adjacent to the border.)  Given its economic crisis, the North may finally be serious about the radical disarmament plans that it has advanced for years.  Successful negotiations would lead to an acceleration of the American withdrawal and forestall a major South Korean arms build-up; failure would slow the American pull-out and force the South to expand its military.

Some analysts want to maintain U.S. forces in the peninsula irrespective of the shifting balance between the two Koreas, in order to preserve an American presence in the region.  Yet 43,000 soldiers in South Korea serve little value.  War with the USSR is unlikely at best and the forces stationed in Korea threaten no vital Soviet interests, nor are the bases necessary for the Navy to operate in a war in Northeast Asia.  In any serious and widespread conflict such an advanced outpost might be hard to maintain and might constitute a strategic embarrassment.

However, assistant secretary for East Asia and Pacific affairs, Richard Solomon, thinks the Soviet threat is irrelevant.  He recently told Congress that "were the Soviet presence to disappear in the emerging security environment, our role as regional balancer and honest broker would, if anything, be more important than ever."  But why?

China, which spends less than South Korea on the military and which is engrossed with internal problems, is even less likely to be an aggressor.  A few analysts view Japan and the United States as being on a long-term collision course and believe an American presence must be preserved to contain our supposed ally.  (For instance, retired Army Chief of Staff General E.C. Meyer considers a reunited Germany and a potentially rearmed Japan to be the two largest threats after the demise of aggressive Soviet communism).  Others have a more benign view of Japanese intentions but worry that an American pull-out might spur Japanese rearmament, thereby unsettling the region.

The threat of Japanese aggression seems faint.  The Kaifu government's proposal to send 2,000 non-combatants to the Gulf collapsed amid widespread popular opposition and the government recently unveiled a five-year defense program that slows the growth of military outlays and cuts the number of ground troops by one-sixth.  More fundamentally, it is difficult to imagine what might impel a nation that has acquired as much wealth and influence peacefully in recent years to go to war again.  If such aggression is really a possibility, it is in America's interest to spur the Pacific and East Asian nations, including South Korea, to increase defense cooperation in order to deter any attack.

More reasonable is the charge that Japan's rearmament would disturb its neighbors.  Relations between Tokyo and those neighbors remain tainted by World War II; one Chinese analyst complains that "the prospect of Japanese remilitarization is a nightmare to all Asian peoples, and particularly to us."  But Tokyo is cognizant of the problem--in May Prime Minister Toshiki Kaifu toured several ASEAN countries and made perhaps the strongest apology yet for Japan's actions in World War II.  He also reiterated past promises that Japan would not become a military power, describing its "appropriate role in the political sphere as a nation of peace," promoting conflict resolution.

This foray into the international arena was generally well received.  Japanese ships also stopped at the Philippines on their way to mine-sweeping duties in the Gulf, Japan's first naval mission beyond its territorial waters in forty-six years, and ASEAN officials were unconcerned.  As Tommy Koh, Singapore's former ambassador to Washington, saw it, "What Kaifu is trying to do is very gently take Japan over the threshold into playing a wider role."  South Korea's decision to hold regular policy talks with the United States and Japan about East Asian policy suggests the possibility of expanded regional cooperation in the future.

Equally important, the end of the Cold War, supplemented by the recent drawdown of Soviet forces in the region--including the departure of all air and naval units from Cam Ranh Bay, the elimination of fifty older vessels in their Pacific fleet, the reduction of forces on the disputed Kurile islands, and the demobilization of some 200,000 service personnel--and by China's turn inward, means that Japan can remain secure even without launching a large military build-up in the wake of an American pull-back.  The current defense relationship, where the United States essentially borrows money from Japan to defend Japan, is outdated.  But the response to an American withdrawal need not be a significantly more powerful Japan, since the threats facing Japan are dissipating.  Instead, Japan could modestly augment its forces, particularly with defensive weapons such as interceptors and frigates, and offer to aid countries, including the ROK, with grants and loans to allow them to enhance their defensive capabilities.

The Korean peninsula is still one of the world's enduring hot spots, but it need not remain so.  To be sure, North Korea is not ready for democratic capitalism: earlier this year Kim Jong-il told the North Korean Communist Party Central Committee that "though the imperialists and reactionaries are now viciously trying to stifle socialism, our socialism continues advancing vigorously along its road without the slightest vacillation in the face of their despicable attack and slander."  But reality has apparently begun to sink into Pyongyang.  While the positive signs being emitted by North Korea are faint, they are positive nonetheless.  The United States should therefore take advantage of this important opportunity to help reduce tensions on the Korean peninsula.

Doing so would obviously help both North and South.  It would also promote peace and prosperity throughout East Asia and the Pacific. In this way, a region that is likely to grow even more important economically may finally be able to fully enjoy the end of the Cold War.

Doug Bandow is a senior fellow at the Cato Institute and co-editor of The U.S.-South Korean Alliance: Time for a Change, forthcoming from Transaction.  He formerly served as a special assistant for policy development to President Reagan.