House of Commons - Foreign Affairs

Select Committee on Foreign Affairs Tenth Report

1 Introduction

1. This is the fourth in the Committee's series of Reports under the general heading "Global Security", following its Reports in 2007 and earlier in 2008 on the Middle East, Russia and Iran.[1]

2. In February 2008 we announced that we would "inquire into the foreign policy aspects of the United Kingdom's relationship with Japan, the Republic of Korea (South Korea) and the Democratic People's Republic of Korea (North Korea)."[2] In particular, we agreed that we would "examine:

Japan's and South Korea's contribution to international security and peacekeeping
North Korea's nuclear programme and international efforts to bring it to an end
Relations between North and South Korea
The three countries' relations with the EU and other international organisations (particularly in the light of Japan's current presidency of the G8)
The effectiveness of the Foreign and Commonwealth Office (FCO)'s work in pursuing UK policy priorities—such as action against climate change and the upholding of human rights—with these countries, and in promoting diplomatic, economic and cultural links between these countries and the UK (including through the work of UK Trade and Investment, the British Council and the BBC World Service)."[3]

3. As the FCO Minister of State, Lord Malloch-Brown, put it to us in his evidence, the UK is "in the second row"[4] of states on the East Asian scene. For instance, neither the UK nor the EU is a participant in the Six-Party Talks involving North Korea (see Chapter Three), while, among Western countries, the US is the dominant state in East Asia. There is no direct security threat to the UK from the region: Lord Malloch-Brown told us that he did "not think that Europe […] is at any risk at this stage" from North Korea.[5]

4. However, North Korea's nuclear and other weapons activities are of international significance, and continue to be a matter of serious concern for all Western states, including the UK. There are risks of further proliferation or terrorist acquisition, and North Korea's activities also have implications for the global non-proliferation regime.[6] Under the FCO's new strategic framework, announced in January 2008, the first of what are now four policy goals for the FCO is to "counter terrorism, weapons proliferation and their causes".[7] The new UK National Security Strategy, published in March 2008, similarly identified nuclear weapons and other weapons of mass destruction as a risk for the UK.[8] North Korea also presents foreign and security policy challenges beyond its weapons-related activities (see Chapter Three).

5. Our choice of inquiry also reflected the status of Japan and South Korea as major economies, with important commercial links to the UK. Japan remains the world's second-largest economy.[9] It is the UK's largest trading partner outside the US and the EU, and the second-largest source of foreign direct investment (FDI) into the UK after the US.[10] The South Korean economy is between eleventh- and fourteenth-largest in the world,[11] and the UK's 25^th-largest export market.[12] As the FCO told us in its memorandum to our inquiry, trade and investment are "the dominant side of [the UK's] relationship" with both Japan and South Korea.[13]

6. The economic weight of Japan and South Korea gives added significance to the existence of a number of difficult regional relationships and issues in East Asia, even beyond the question of North Korea. For example, the way in which its East Asian neighbours interact with China's rising power will be crucial to regional stability. We also considered that an inquiry into Japan and the Koreas would offer an opportunity to revisit, from a different perspective, a number of the regional issues which we considered in the China-focused Report on East Asia which we produced in 2006.[14]

7. South Korea and especially Japan are increasingly important as regards several of the international issues which are central to UK foreign policy. These include climate change, international peacekeeping, development policy and UN reform. Japan has had a particularly important international role in 2008 as chair of the G8.

8. A number of anniversaries made 2008 an auspicious year to examine the UK's relations with Japan and the Koreas. The year marks the 150^th anniversary of the opening of diplomatic relations between the UK and Japan, a milestone which is being marked by a major British Council programme of events in Japan (see Chapter Six). In 2008, it is also 125 years since the 1883 UK-Korea Friendship Treaty, 60 years since the foundation of South and North Korea, and 55 years since the end of the Korean War.

9. We held three evidence sessions during the inquiry. In March 2008, we heard from Dr John Swenson-Wright (Cambridge University), Aidan Foster-Carter (Leeds University) and Professor Hazel Smith (Warwick University). In April, we heard from Norma Kang Muico (Amnesty International), Sir Stephen Gomersall (Hitachi; formerly British Ambassador to Tokyo) and Dr Jim Hoare (author and former FCO official in Beijing, Seoul and Pyongyang). The FCO Minister responsible for Asia, Lord Malloch-Brown, appeared before us in July, together with the FCO's Head of Eastern Group, Stephen Lillie. As part of our inquiry, we travelled in May to Japan (Tokyo and Osaka) and Korea (Seoul and the Demilitarised Zone in South Korea, and the Kaesong Industrial Complex in North Korea). Our meetings and visits there are listed in an Annex. We also took the opportunity to discuss questions relevant to our inquiry during meetings with UN and other interlocutors in New York in October 2008. We would like to thank all those who gave evidence to our inquiry, and the relevant UK Posts for their assistance in connection with our visits.

10. We are grateful to all those who submitted written material. They included the Japanese and South Korean Embassies in London, who sent us a selection of their publicly-accessible foreign policy materials which we have not reproduced here. The North Korean Embassy was invited to submit evidence but declined to do so.

11. Given the specific complex of policy issues which North Korea presents, in this Report we consider that country in a dedicated chapter (Chapter Three). The remaining Chapters consider Japan and South Korea, under a number of broad thematic headings. By taking the two countries together, we do not wish to downplay their independent status or the many important differences between them, but rather to reflect the fact that they present some common issues from a UK policy perspective. In our first substantive Chapter (Chapter Two), we establish the regional context, focusing on the relations of Japan and South Korea with the US and China, as well as each other. We also consider regional trade and security arrangements in this chapter. Our discussion of policy towards North Korea in Chapter Three—which includes consideration of North-South Korean relations—must be set against this background. Chapter Four discusses the wider international roles of Japan and South Korea, especially in light of Japan's 2008 G8 chairmanship. Chapter Five considers human rights in Japan and South Korea, given that the promotion of human rights is an FCO policy goal.[15] Chapter Six discusses the UK's relations with Japan and South Korea in the economic and cultural spheres, including the work of the British Council and the BBC World Service.

Current political and economic scene in Japan and South Korea

12. Our inquiry took place at a time when domestic political and economic circumstances were impinging especially prominently on Japan and South Korea's international affairs.

JAPAN

13. The recent political history of Japan has been marked by instability within the ruling party and parliamentary deadlock. This has particularly hampered attempts to expand Japan's capacity to contribute to multinational peacekeeping operations and other forms of overseas intervention.

14. The dominant party in Japanese politics since the 1950s has been the conservative Liberal Democratic Party (LDP). It was in power continuously from 1955 to 1993, when a coalition of opposition parties briefly took over the government. By the following year the LDP was back in power as the head of a coalition, a pattern that has been followed in every parliament since then. The current coalition was formed in April 2000 between the LDP and New Komeito, a small party with Buddhist affiliations. The second-largest party is the Democratic Party of Japan (DPJ), formed in 1998 from a merger of four smaller parties. The DPJ forms the opposition in the lower house, but is the largest party in the upper house.

15. The current period of turbulence in Japanese politics began following the resignation of Junichiro Koizumi in September 2006. The charismatic Koizumi had become Prime Minister in 2001. He made his mark as an economic reformer, steering through the privatisation of the post office (the largest financial institution in the country, offering banking and insurance services), and presiding over an improvement in Japan's economic fortunes. In foreign policy, he struck up a personal friendship with US President George W. Bush, deployed the Self-Defence Forces to Iraq,[16] was assertive in dealing with North Korea (over the nuclear issue and abductions),[17] and controversially visited the Yasukuni shrine (where the spirits of Japan's war dead—including convicted war criminals—are honoured) six times. He was popular with the general public and won a landslide victory in the general election of 2005. His resignation the following year followed his decision not to seek re-election as LDP leader after the expiry of his term of office.

16. Koizumi was succeeded by Shinzo Abe, Japan's youngest post-war Prime Minister, and the first to be born after the Second World War. In his brief spell in office he pledged to continue Koizumi's reform programme, took a hard line on North Korea, and made a successful three-day visit to India in August 2007. He suddenly resigned in September 2007 for health reasons, following mounting unpopularity, severe LDP losses in the upper house elections, and the suicide of his Agriculture Minister.

17. Abe's replacement, the 71-year-old Yasuo Fukuda, was described by the FCO as taking a "moderate, consensual approach".[18] His 12-month period in power was dominated by continuing parliamentary gridlock arising from the opposition DPJ's control of the upper house. The government can secure its economic measures because only the lower house votes on these, but for the passage of other legislation the consent of both houses is required. There is an 'override' mechanism, whereby if the upper house votes down a bill, or fails to take a decision on it for 60 days, a two-thirds majority of the lower house can force it through. As with the use of the broadly comparable 'Parliament Act' mechanism in the UK, recourse to this means of over-ruling the upper house is seen as controversial. The Fukuda government made use of it in January 2008 to force through the Diet a bill to enable Japanese ships to continue to refuel coalition vessels in the Indian Ocean. However, the Government made no progress with general legislation to obviate the need for case-by-case parliamentary approval of overseas deployment of the Self-Defence Forces.[19] It also had to deal with other political problems including allegations of corruption at the Defence Ministry, and gathering signs of an economic downturn.

18. The Fukuda premiership came to an abrupt conclusion in September 2008. On 1 September Mr Fukuda announced his intention of resigning. At a press conference he complained of the burdens of office and the intractable nature of the political problems facing his government.[20] Like his predecessor Shinzo Abe, he had served only 12 months in power. Following an LDP leadership election, Taro Aso succeeded Fukuda as Prime Minister on 24 September 2008. He is Japan's eleventh Prime Minister in 15 years, and its fourth in the last two years.

19. Mr Aso, aged 68, served from 2005 to 2007 as Minister for Foreign Affairs. He has described himself as a "hawk" on foreign policy issues.[21] As of November 2008, it is not yet clear whether he intends to continue Fukuda's policy of conciliating China and other regional states by not visiting the Yasukuni shrine. However, he visited China in late October 2008 to attend the Asia-Europe Meeting (ASEM) of Asian and European leaders.

20. The DPJ has called for early elections for the lower house. However, from Mr Aso's perspective this would be a risky strategy because further LDP losses might eliminate the LDP's two-thirds majority in that house. Opinion polls have shown a steep decline in support for the LDP since the 2005 election, but the party will be hoping for an upwards 'bounce' following the change of Prime Minister. There is no obligation to hold lower-house elections until September 2009. Speaking on 2 October 2008, Mr Aso said that he had not decided on a timetable for these because he wished to give priority to sorting out the economy.[22] Meanwhile, the LDP will have no opportunity to overturn the DPJ's majority in the upper house until the next set of elections for that house, which will not be held until 2010.

21. As Prime Minister Aso has indicated, the major issue facing his new administration is the state of the Japanese economy. Japan's economy remains the world's second-largest, measured by nominal GDP (behind the US), and its third-largest measured on a purchasing power parity basis (behind the US and China). In recent years the economy has staged a partial recovery after the ten years of near-stagnation which followed the bursting of the asset price 'bubble' in 1989. From 2002, growth rates picked up. In 2006 growth was 2.2%, GDP per head was U$34,188 and total GDP was $4,367 billion.[23] The FCO commented in early 2008:

That the economy is recovering strongly is no longer in doubt. […] Booming exports and business investment and solid growth in private consumption have been driving this, but increasingly the domestic private sector has taken over from exports as the main driver for growth. The economy is now as close to achieving self-sustaining growth as it has been at any time since 1990.[24]

22. However, Japan has longer-term structural problems including the size of government debt, which totals 182% of GDP, and the world's fastest-ageing population (attributable to high life expectancy and a low birth rate), which has implications for future health and social care costs. Japan has few natural resources and its major industries are heavily dependent on imported raw materials, making the economy vulnerable to increases in global commodity prices.

23. Giving evidence in April 2008, Sir Stephen Gomersall, Chief Executive for Europe at Hitachi and formerly British Ambassador to Tokyo, told us that the Japanese economy was polarised between an efficient export sector (which had benefited from restructuring during the 1990s) and a less efficient domestic sector. He argued that, although growth rates under Mr Koizumi were comparable to those of the EU as a whole, looked at in the longer term, "the Japanese economy is under-performing in comparison to its potential".[25] He added that, although in the short term Japan was probably less exposed to the sub-prime crisis than other countries, nonetheless "the combination of dependence on export markets, increase in import prices, the potential rise in the value of the yen, the expected decrease in corporate earnings, and generally low consumer sentiment in Japan" is likely to result in significantly reduced rates of growth.[26]

24. Since Sir Stephen gave evidence, Japan has increasingly felt the effects of the global downturn and the dramatic instability in financial markets in September and October 2008. Prime Minister Aso has undertaken to introduce an emergency budget to tackle the deteriorating economic situation in a context of rising inflation, slowing growth and a fall in both business and consumer sentiment.[27] There is a debate within the LDP over how far to discipline Japan's fiscal policy. While there is agreement that in the short to medium term, fiscal measures are needed to stimulate demand, some senior LDP politicians also argue that that there should be a longer-term shift from income tax and other forms of direct taxation, to indirect taxation on the European model. Consumer tax in Japan is currently set at 5%, significantly below the EU rate for VAT.

SOUTH KOREA

25. South Korea experienced a political earthquake in December 2007, when the conservative Lee Myung-bak won the Presidency in an emphatic election victory which ended a decade of government by the political left, under former Presidents Kim Dae-jung and Roh Moo-hyun. President Lee took office in February 2008. His position and that of his Grand National Party (GNP) appeared to be strengthened in the April 2008 Parliamentary elections, in which the political right similarly overturned a previous left-wing majority. Coming from a business background, as a former CEO of Hyundai Construction (part of one of South Korea's major conglomerates), President Lee was seen as a forceful, "can-do" executive, nicknamed "the Bulldozer". However, a series of incidents saw the new President's popularity collapse to around 20% by early summer 2008, when the GNP also lost a number of local by-elections, although the President's standing had recovered somewhat by the autumn.[28]

26. The most high-profile controversy of the new Presidency surrounded the import of US beef, an issue relevant to both trade policy and US relations. South Korea banned such imports in 2003, after a BSE case, but in April 2008 President Lee announced the lifting of the ban, as he left on his first visit in office to the US. President Lee appeared to be aiming to boost prospects that the US Congress would ratify the South Korea-US Free Trade Agreement (KORUS FTA) (see Chapter Two).[29] Amid food safety fears, President Lee's move was rejected by the political opposition in Seoul, which linked the beef deal to its own willingness to ratify the KORUS FTA. The proposed resumption of US beef imports also prompted prolonged mass protest demonstrations which appeared to channel other sources of discontent with the new Administration, rooted partly in the historic divide between the former right-wing authoritarian regime and the 1980s pro-democracy movement against it, and perhaps also drawing on economic protectionist and anti-American sentiments and dislike for President Lee's political style.[30] President Lee felt obliged to apologise publicly for his handling of the beef issue, and to negotiate a revised agreement with the US which allowed imports from July only of beef younger than 30 months.[31] President Lee replaced three Ministers over the affair, although in the midst of the crisis the entire Cabinet had offered to resign. Largely owing to the beef row, the outgoing National Assembly did not ratify the KORUS FTA before its term ended in late May, as President Lee had wished; the opposition boycotted the new National Assembly until mid-July; and US President Bush postponed a visit to Seoul which had been planned for the same month.[32] The Government re-introduced the ratification bill to the new National Assembly in October 2008.[33] When he gave evidence to us in early July, Lord Malloch-Brown said that President Lee's domestic crisis meant that the Government was "not quite sure how dynamic [South Korea's] foreign policy can be in the coming months".[34]

27. In the economic field, President Lee came to office with ambitious plans to boost South Korea's flagging growth, through privatisations and pro-business measures as well as free trade agreements such as that with the US. However, given President Lee's background in one of South Korea's large conglomerates (chaebol), which had flourished in the country's somewhat more closed and state-dominated economy up to the 1990s, Aidan Foster-Carter of Leeds University already expressed some scepticism to us in March about the strength of the new Administration's commitment to further economic liberalisation and internationalisation.[35] The US beef row also highlighted economic sentiments—and left a political landscape—which some have interpreted as casting doubt over prospects for President Lee's reform agenda.[36]

28. The South Korean economy is also being hit by the global economic downturn. Following the liberalisation undertaken after the 1997-98 Asian economic crisis, South Korea is highly exposed to the international economy, and it is heavily dependent on imports for its energy supplies. By October 2008, the won had fallen to 10-year lows against the US dollar, amid liquidity and debt fears. Forecast economic growth had been lowered to perhaps 4.7% for 2008 and significantly less for 2009.[37] Having raised interest rates in August to tackle inflation, the central bank cut them twice in October, including as part of central banks' coordinated international response to the credit crunch early in the month.[38] In October and early November, the Government extended liquidity to banks, guaranteed their foreign-currency borrowings and announced an economic stimulus package of tax cuts and extra spending worth $11 billion.[39]

29. The former FCO official Dr Jim Hoare told us in April that he thought that President Lee realised that "one way to get round [South Korea's economic problems] will be more international links and trade."[40] Although the Administration has delayed some planned privatisations, in his opening address to the new National Assembly in mid-July President Lee reaffirmed his commitment to deregulation, privatisation and reform of the state sector;[41] and in September and October President Lee again indicated plans along these lines, particularly regarding services, and including a relaxation of some restrictions on foreign ownership.[42] In August, South Korea agreed with Australia to open talks on a free trade agreement (see Chapter Two).[43]