What Happened in 2002

In October, North Korea admitted that it has been conducting a major clandestine nuclear weapons development program for several years. This activity is in direct violation of the 1994 Geneva Accords, or Agreed Framework, negotiated and signed by the Clinton Administration and Pyongyang, which called for North Korea to freeze its nuclear program in exchange for two civilian light-water nuclear reactors. North Korea has indicated that it may end its self-imposed moratorium on missile testing if it does not continue to receive aid and assistance from the international community.

What to Do in 2003

The United States and its allies must not allow North Korea to repeat the strategy of blackmailing the international community to secure handouts. The United States should:

• Coordinate with South Korea and Japan to halt food and energy assistance to North Korea until it dismantles and abandons its nuclear, chemical, and biological weapons programs. The United States and its allies should send a strong message to North Korea that there will be immediate and negative consequences of any violations of international agreements.
• Coordinate similar policies with Russia and China to pressure North Korea into ending its threatening weapons programs. In order to ensure security in the region, both countries should enhance their leverage over North Korea by halting assistance to that regime. As members of the U.N. Security Council, Russia and China should pressure North Korea to accept the International Atomic Energy Agency (IAEA) inspections of its nuclear facilities.
• Explore alternative strategies of defense in Northeast Asia. Effective defense could include a ballistic missile defense program with Japan, South Korea, and other partners in the Western Pacific.

JAPAN

ACTION: Lend all possible assistance to Japan to encourage economic reform, and work closely with Tokyo to coordinate security objectives and policies in the region, especially regarding North Korea.

The Issue in Brief

Despite a decade of economic stagnation, Japan remains the world's second largest economy. But Japan's position as the economic anchor of Northeast Asia is increasingly unsteady; unless it reforms its economic and financial sectors, it could lose this valued position. To avert a possible economic crisis, Japan must continue to focus its energy and political will on revitalizing its moribund economy.

Japan is also America's "northern pillar" of security in East Asia. The importance of this relationship was made clear with Japan's strong show of support for the U.S. war on terrorism. Japan's role will be critical to any peaceful resolution to conflict on the Korean Peninsula.

What Happened in 2002

The Japanese economy continued its downward slump last year, contracting 1 percent. While bad news in the economy is not new (Japan has experienced stagnant growth and four recessions since 1990), its lack of revitalization at a time when the U.S. economy is showing signs of vulnerability could mean serious trouble for the global economy. The dismal state of Japan's financial system, especially its overwhelming burden of bad bank debt, may cause instability in the global banking system if not quickly addressed.

What to Do in 2003

The United States can do much to lend both credibility and a sense of urgency to the difficult tasks facing the Japanese leadership. The United States should continue providing unequivocal political support to Japan to continue the reform efforts begun by Prime Minister Junichiro Koizumi. The United States should not repeat the mistakes of the past; for example, it should refrain from badgering and bullying the Japanese on a lack of progress. Such tactics were fruitless and damaged the alliance. Specifically, the United States should:

• Assemble key economic and financial advisers to work with their counterparts in Japan on the issues of financial restructuring and reform. This group of public and private-sector experts could provide key lessons learned from America's own savings and loan crisis in the 1980s, and it could assist in the technical aspects of implementing new policies.
• Communicate U.S. economic priorities to the Japanese leadership. Washington must make clear that America will not overlook any lapses by Tokyo in financial, economic, and political reform in exchange for its support of the U.S. war on terrorism and efforts to force Iraq to dismantle its weapons of mass destruction.
• Formulate a contingency plan for the possibility that the Japanese economy does not recover and experiences a serious economic crisis. The plan must ensure that the U.S. economy is not unduly exposed to a systemic failure in Japan, and it should insulate the United States from the negative repercussions of a Japanese financial crisis.
• Explore alternative methods of defense for U.S. allies and troops in the region. Based on increased security threats from North Korea, the United States should work to expand missile defense cooperation with Japan and other allies.

Balbina Hwang is Policy Analyst for Northeast Asia in the Asian Studies Center at The Heritage Foundation.

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