Yimin Lai

Winter 2005

IRCO 410: International Politics and Security

Strategic Choice in the North Korea Nuclear Crisis Negotiations

The current international crisis over North Korea’s nuclear ambitions has been unresolved since

2002. While the news media is quick to point to this as a result of irrational stubbornness by both North

Korean and American leadership, the author approaches the crisis from a strategic choice perspective

and hopes to demonstrate that both sides are acting rationally at the negotiations table. Using primarily

the haggling paradigm developed by John McMillan, I consider North Korean leadership to be

concealing its true intentions to gain bargaining leverage; the United States, faced with informational

uncertainty, has chosen to use methods of screening and stalling to maximize its gains at the negotiations

table. However, because of counter waiting costs on the United States, North Korean leadership has also

chosen a stalling tactic of its own. Due to costs on both sides, this stalemate cannot last forever. Based

on what the author believes to be a more significant cost for the United States, it is likely that the United

States will soon lower its demands at the bargaining table and accept a North Korean nukes-for-foreign-

relations program.

In my analytical framework, there are two main players: the U.S. leadership and the North

Korean leadership. While other nations will no doubt have their own courses of action, such a multi-

player game is hard to analyze in the scope of this project, and I will instead credit those nations with

having important sway in the preferences and goals of the two main players rather than out rightly

influencing the US and DPRK actions.

 It is impossible to understand the DPRK’s leadership preferences without looking at its domestic

and international pressures. At home, it is clear that there exist significant economic and social problems

which threaten the current regime. As the Economist notes, “decades of natural disasters and reliance on

a perverse philosophy of self-reliance (juche) have destroyed North Korea's economy. Some 2 million

North Koreans have died of hunger since 1995 and many others flee abroad. The country is now

dependent on foreign aid, which it elicits with threats. Economic reforms introduced in July 2002 have

made life easier for many, but real progress will require better foreign relations.”1 The North Korean

government also faces threats in the international political arena. It is vulnerable militarily on various

fronts, surrounded by China, Japan, and South Korea. However, the most menacing development is the

United States’ recent labeling of North Korea as part of an “axis of evil”. After witnessing US military

activities in Afghanistan, the leaders of DPRK understand that a military confrontation with the United

States probably means an end to the current regime. In the face of these internal and external pressures,

the DPRK’s preferences are not a matter of taste, but survival. Kim Jong Il’s government must find a

way to guarantee its security and sovereignty, while improving its foreign relations and avoiding war.

As a government that must practice accountability to its electoral constituencies, the Bush

administration’s preferences are driven by its commitment to its political agendas and the safeguarding

of national interests. The 9-11 terrorist attack seemed to bring both these interests together- national

security not only is a concern for the national populace but also appeals to hawkish members who

influence policy decisions. The Bush administration boosted US defense spending and forced the nation

to take security concerns seriously. No doubt, a nuclearized North Korea would pose as a significant

threat to the United States’ interests in East Asia, and the administration prefers a guarantee to American

security while avoiding war.

1
Economist Online Backgrounder: North Korea,
http://www.economist.com/research/backgrounders/displaybackgrounder.cfm?bg=1268555
 Considering that the negotiations have been in a stalemate since the eruption of the crisis in 2002

despite multilateral talks, I will not adhere to the traditional action-reaction game tree analysis. Instead, I

will treat the strategic game as a snapshot that occurred after the US confrontation of North Korea with

evidence of a uranium-enrichment program, which is a second path to the development of nuclear

weapons. North Korean officials reportedly admitted the existence of a nuclear weapons program and

began a series of steps to pressure the United States to negotiate with them, despite the U.S.

government’s insistence that it would not “reward bad behavior” with concessions.2 While the

“unreasonable demands” and stalling are the essence of this unresolved conflict, I believe that these

actions are not a result of foolish obstinacy by the different parties, but deliberate choices by both parties

to increase bargaining leverage.

At any negotiations table, there exists informational asymmetry that changes bargaining

dynamics. A trademark of the North Korean strategy has been to maximize its bargaining power by

maintaining ambiguity about its nuclear intentions for as long as possible. As Saunders3 noted, “that is

why North Korean negotiators rebuffed U.S. demands for immediate special inspections as far back as

1994. If inspections revealed that North Korea did not have enough plutonium for nuclear weapons, the

United States would take North Korea less seriously, reducing Pyongyang’s negotiating leverage.

Conversely, if inspections revealed that North Korea already had sufficient plutonium to build weapons,

the United States might not agree to a deal. Ultimately, the Agreed Framework required special

inspections that would determine North Korea’s nuclear history before key components of the two

nuclear reactors would be delivered.” This compromise allowed North Korea to maintain ambiguity

about its nuclear capabilities for the past decade. As a result, I treat the recent development in North

Korea - the removing of surveillance cameras from its Yongbyon nuclear complex, expelling of

2
Paul Kerr, “North Korea Talks Stymied”, Arms Control Today, April 2004
3
Philip Saunders, “Confronting Ambiguity: How to Handle North Korea's Nuclear Program”, Arms Control Today, March 2003
inspectors from the International Atomic Energy Agency, and withdrawal from the Nuclear

Nonproliferation Treaty4 - not as signs of guaranteed commitment to its nuclear development, but as

further attempts to increase the ambiguity of its nuclear commitment. As Squassoni’s article showed,

there remain many questions regarding the legitimacy of North Korea’s claims of possessing a nuclear

arsenal5.

Because of the informational uncertainty, there exist several possible objectives for the North

Korean nuclear commitment. I borrow from earlier literature to propose three different scenarios6:

One, North Korean leaders have decided that nuclear weapons are essential to their security and

are committed to developing them at the cost of foreign relations. This model is consistent with KCNA’s

statement that, “The US disclosed its attempt to topple the political system in the DPRK at any cost,

threatening it with a nuclear stick. This compels us to take a measure to bolster its nuclear weapons

arsenal in order to protect the ideology, system, freedom and democracy chosen by its people. It is the

spirit of the Korean people true to the Songun (military-first) politics to respond to good faith and the

use of force in kind.”7

Two, North Korean leaders are willing to disarm in exchange for a guarantee of security and

sovereignty, in other words, they value good foreign relations with the United States more. There is

considerable support for this model. During August 2003, North Korea asked for a non-aggression pact

with the United States to resolve the nuclear stand-off.8 In January 2004, North Korea offered to refrain

from testing and producing nuclear weapons in a "bold concession" and again offered to freeze nuclear

reactors producing weapons grade plutonium if compensated by Washington.9 North Korea’s previous

success in persuading the United States to increase food aid in exchange for inspecting a suspect nuclear
4
IRPS Lecture Notes: International Politics and Security, 2005
5
Sharon A. Squassoni, “North Korea’s Nuclear Weapons: How Soon an Arsenal?” CRS Report for Congress, February 2, 2004
6
Saunders, 2003
7
KCNA Transcript, February, 2005
8
Timeline: “N. Korea nuclear dispute” CNN, February 14, 2005
9
Timeline, CNN, 2005
facility at Kumchang-ri—which turned out to have no nuclear equipment—suggests that a nuclear bluff

is a possibility.10

Three, North Korean leaders want both nuclear weapons (as an ultimate security guarantee) and

better relations with the United States, Japan, and South Korea. As Saunders noted, “the hedge scenario

explain some aspects of North Korea’s behavior, such as the relatively small scale of its nuclear weapons

program, its willingness to accept temporary limits on the size of its nuclear arsenal (while pursuing

efforts to develop more advanced capabilities).11

The presence of three possible scenarios presents a dilemma for the United States. It does not

understand how much North Korea values its nuclear program, and each scenario would warrant a

different negotiations response, including stopping talks and beginning military buildup (in the case of

scenario one). In the McMillan framework, when facing an informational disadvantage, players will

often revert to “screening”, McMillan noted, “One possible strategy for the seller is to ask for a

relatively high price in the first period, in the hope that the buyer has the high valuation: and drop the

price in the second period, on the assumption that the buyer must have the low valuation if he rejects the

first-period offer.”12

In looking at the United States’ actions, we can see a classic display of screening. The United

States has used hard-line rhetoric in the course of this crisis, maintaining that Washington would not

agree to face-to-face talks with the North until Pyongyang makes a “fundamental choice” to abandon its

pursuit of nuclear weapons13. However, the United States has also hedged these statements by offering

incentives for North Korea to freeze and then dismantle its nuclear facilities, which were included in the

last round of six-party talks.14 More evident is Bush’s February 2nd State of the Union address, where
10
Saunders, 2003
11
Ibid.
12
McMillan J., “Using Information Strategically,” chapter 6 in Games, Strategies & Managers: How Managers Can Use Game
Theory to Make Better Business Decisions. (Oxford: Oxford University Press, 1992).
13
Kerr, 2004
14
Kerr, 2004
Bush only briefly mentioned North Korea, saying Washington was "working closely with governments

in Asia to convince North Korea to abandon its nuclear ambitions." This is in stark contrast to his

address three years ago when he branded North Korea part of an "axis of evil".15 This change in tone

possibly signifies the United States’ considering of a later period drop in its high price of negotiations.

The North Korean government also accuses the Bush administration of stalling during various

stages of negotiations, particularly in October 2004.16 As I noted above, the current economic and

political problems pose significant risks to the current DPRK regime. The Bush administration could

very well be following the McMillan negotiations playbook, as “delay causes a loss for the buyer; this

loss is larger the more the buyer values the product”.17

These tactics, however, have had a limited effect on inducing clearer signaling from the North

Korean regime. Despite its recent boasting of possessing nuclear weapons, North Korea still hints at the

possibility of talks with key Chinese officials,18 making further nuclear development commitment

ambiguous. Also, in an interesting twist, North Korea has also chosen to stall. Despite agreeing to

multilateral talks, North Korea stated that, “We have wanted the six-party talks but we are compelled to

suspend our participation in the talks for an indefinite period till we have recognized that there is

justification for us to attend the talks and there are ample conditions and atmosphere to expect positive

results from the talks.”19

In a complication of McMillan’s game, not only could the seller inflict costs on the buyer by

delaying, the buyer in turn also has the power to inflict costs by delaying. It is likely that DPRK

leadership recognizes that there are significant waiting costs for the United States. As CIA director Goss

stated, “Our assessment is they (DPRK) have a greater capability than that assessment, in other words, it

15
CNN Online, “World regrets North Korea's quitting nuke talks”, Feb. 2005
16
CNN Timeline, 2005
17
McMillan, 1992
18
CBS Online “N. Korea could still be open to talks”, Feb. 2005
19
KCNA, 2005
has increased since 2002".20 The cost of waiting and allowing North Korea to develop more nuclear

weapons is quite significant for the United States. As Defense Secretary Donald H. Rumsfeld recently

said, “North Korea’s [nuclear] statement was worrisome in part because the hard-line communist nation

is probably one of the world’s leading proliferators of ballistic missile technology."21 The security issues

that arise from North Korea having the time to develop nuclear weapons would be a nightmare for the

current administration.

This brings us to the next question, how will this crisis ultimately play out? While negotiations

often break down and cause impasses because of informational asymmetries, I believe the current

delaying cost situation would ultimately push United States into lowering its demands at the negotiations

table. Although there are also delaying costs to North Korea, the status quo will not deal a death blow to

the regime in the near term.22 As the Economist noted, “there are limits to how effective a policy of

isolation would be on a nation which is already isolated.”23 However, the potential development of a

massive nuclear arsenal, is a waiting cost that the United States cannot afford.24 Through both its

screening process and by increasing costs due to delay, it is likely that the Bush administration will give

in by offering a better negotiations package to North Korea in the near future.

20
Anthony Faiola, “N. Korea Declares Itself a Nuclear Power- Pyongyang Indicates It Will Withdraw Indefinitely From Six-Nation
Disarmament Talks”, Washington Post Foreign Service, February 10, 2005
21
Ibid
22
Selig Harrison, Korean Endgame: A Strategy for Reunification and U.S. Disengagement, Princeton, 2002
23
Economist Backgrounder, 2005
24
BBC News, “Q & A: North Korea’s Nuclear Threat” http://news.bbc.co.uk/1/hi/world/asia-pacific/2340405.stm, 2005