Outlook for Northeast Asia Still “Hard to Predict”
Although growth headwinds are projected to blow across Asia in 2015, specific prospects for the Northeastern region remain much harder to predict.
In the wake of the Cold War, the geopolitical panorama is still prone to high levels of instability. And the outlook for the region depends on resolving ongoing tensions and disputes between North Korea and its neighbors.
This was the picture painted by Terusuke Terada, who visited IESE’s Barcelona campus last week. Former ambassador to Korea, Terada was invited to share an overview of the geopolitical context and the future for business in Northeast Asia with IESE MBAs – some 25 percent of whom are of Asian origin.
Although the end of the Cold War brought about significant changes in diplomacy and a gradual emergence of democracy, past disputes grounded in unwavering ideologies are proving almost impossible to resolve, says Terada. He highlighted some of the defining historical events that form the basis of the current situation.
Post-Cold War Disarmament: The North Korean Issue
With the end of the Cold War in 1990, world powers sought to normalize international relations, a primary objective being the winding down of nuclear weapons. Some 190 states signed the Non-Proliferation Treaty (NPT), an agreement created to prevent the proliferation of nuclear weapons and move towards complete disarmament.
Although North Korea signed the treaty in 1985, the country announced in 1994 that it would withdraw from the NPT within three months.
The Agreed Framework
U.S. President Jimmy Carter negotiated a new deal with North Korea in 1994. Pyongyang agreed to "freeze" its nuclear weapons program and resume bilateral talks with the United States.
In October of that year, the U.S. and the Democratic People’s Republic of Korea (DPRK) signed the Agreed Framework. The DPRK agreed to freeze its graphite-moderated reactors in exchange for light-water reactors.
The framework collapsed, however, and North Korea definitively withdrew from the NPT, vowing to renew operations across its nuclear facilities.
The Six-Party Talks
Attempts continued to be made to try to negotiate stability. Japanese President Junichiro Koizumi met Kim Jong-il in September 2002 and signed an agreement aimed at improving diplomatic relations. The United States also negotiated with North Korea in the same year with the goal of halting its nuclear power plant program but that agreement broke down in 2003.
China, Japan, North Korea, Russia, South Korea, and the United States met later in 2003 for the first round of the Six-Party Talks on North Korea’s nuclear weapons program. Progress was hampered by North Korea’s decision to test fire ballistic missiles in 2006 and the talks ended in December 2008.
The Future Outlook for Northeast Asia
With the death of Kim Jong-il in 2011 and the ascendancy of his son Kim Jong-un to power, signs of a wholesale North Korean denuclearization remain hard to see, says Terada. A situation he describes as "threatening, in terms of global security."
Many uncertainties remain and it’s hard to predict the outlook based on historical patterns, he says.
As Northeast Asia struggles with post-Cold War power realignments, Terada sees four possible scenarios for North Korea: An attempt at reforms under the new leadership of Kim Jong-un; the eruption of factional infighting within the North Korean government; a spontaneous outbreak of popular revolt; or a contagion of unrest coming from China.
All four scenarios present serious challenges for Northeast Asia in terms of its economic growth and its political stability.
"We can’t say with certainty that any of these scenarios will play out for sure, but it remains prudent to prepare for potential breakdown in the future," said Terada.