The Peninsula

10 Issues to Watch for on the Korean Peninsula in 2023

A video version of the 10 Issues to Watch for on the Korean Peninsula in 2023 with the blog’s authors is available on KEI’s YouTube channel.

The most significant event to impact the Korean Peninsula in 2022 was Russia’s invasion of Ukraine. As in much of the world, the war had the effect of furthering inflation, significantly driving up energy costs, and pushing South Korea into only its second trade deficit this century. Outside of the war’s economic implications, it has created opportunities for South Korea to expand defense exports, but also drawn North Korea and Russia closer together.

Beyond the war in Ukraine, policy shifts in the United States have created tensions in the U.S.-Korea relationship. The United States’ increasing turn to export controls to keep sensitive technology out of China’s hands, along with the passage of the CHIPS Act, have limited the ability of South Korean semiconductor firms to do business in China. In addition, U.S. efforts to address climate change through the provisions of the Inflation Reduction Act have had the unintended consequence of discriminating against South Korean made electric vehicles in the U.S. market. In the year ahead, South Korea is expected to continue to push the U.S. government to make changes to the Inflation Reduction Act to address its concerns.

Despite two years of strict border controls, North Korea experienced its first publically acknowledged outbreak of COVID-19 last year. It also began to emerge from its self-imposed calm and isolation. North Korea resumed conducting missile tests on a regular basis and finished the year having conducted more missile tests than ever before. It also began to increase trade with China. Exports to China were up just over 130 percent from 2021 levels, while imports were up a 247 percent. While trade remains below pre-pandemic levels, the increases over the last year raise the question of whether Pyongyang will open up further in 2023.

With that in mind, here are 10 issues related to the war in Ukraine, U.S.-Korea relations, South Korea’s relations in the region, technology, and North Korea to follow that will have an impact on the Korean peninsula in 2023:

The War in Ukraine and the Korean Peninsula

February 2023 marks one year since the beginning of Russia’s full-scale invasion of Ukraine and there is no end in sight to the conflict.

The war has already left an indelible mark. It has presented a glimpse of 21^st century warfare, and will continue to affirm the importance of economic security as a core tenet of national strategy—acutely demonstrating the threats posed by the weaponization of energy and the fragility of global supply chains.

As a result for Seoul, 2023 could be the year for a review of its energy dependency, not just on Russia but also on suppliers from the Middle East and elsewhere. Strengthening trade partnerships with the United States, the EU, ASEAN, and Japan will also remain relevant to shore up critical supply chains.

The return of kinetic warfare to the European continent has also renewed global demand for armaments and the industrial capacity to produce such platforms. South Korea’s ability to fill orders and transfer technology to Poland in 2022 could continue to present an attractive proposition for militaries in Europe, the Middle East, and beyond.

The blocification of the post-Cold War global order has sped up as a result of the war in Ukraine and will continue to limit Seoul’s foreign policy options. For issues such as North Korean denuclearization, traditionally relied-upon multilateral institutions like the UN Security Council will likely remain paralyzed due to North Korean support for Russia’s invasion, as well as alignments of opportunity between Moscow and Beijing against U.S.-led alliances and partnerships. Beyond the peninsula, Seoul must also navigate issues such as U.S.-Chinese semiconductor competition in a world where compromise between economic needs and security concerns is increasingly unacceptable in Beijing, Washington, Brussels, and beyond.

Will North Korea Transition to Living with COVID?

The impacts of COVID and the draconian efforts to prevent its spread are likely to continue to be a leading issue for Pyongyang in 2023. North Korea has a fragile healthcare system, and the country’s scarce resources are devoted to nuclear and missile programs not its citizen’s wellbeing.

Trade with China is key to economic health of North Korea, but the continuing border closures with China to deal with COVID have been nearly as significant as the impact of United Nations economic sanctions because of Pyongyang’s nuclear and missile programs.  Because of COVID precautions, North Korea lost an estimated $2 billion in imports in 2020, with similar trade losses annually since then.  Using Chinese trade statistics, China-North Korea trade in 2021 was only $318 million—41 percent less than the $539 million reported for 2020 and only 11 percent of the $2.78 billion reported in 2019 before any impacts of COVID.  Continuing such substantial economic problems could lead to significant internal tensions.

The massive COVID outbreak in China from its own removal of restrictions to a living with COVID policy is likely to give North Korea pause before engaging in a similar course, while the benefits of tighter controls for the regime may also be a factor in any decision this year to move towards normalizing North Korea’s border.

North Korea’s Weapons Tests and the Prospects for Renewed Negotiations

Occasionally, Kim Jong-un does exactly what he says he’s going to do. While predicting Kim’s internal calculus or specific actions is never wise, when it comes to North Korea’s weapons programs in 2023 it appears likely we will see a continuation and potentially worsening of what Pyongyang did last year.

During North Korea unprecedented weapons testing campaign in 2022, Kim signaled the intent to develop the world’s most powerful strategic force and bolster North Korea’s deterrent as quickly possible. Moving into 2023, Kim has made clear his regime’s intention to “exponentially increase” nuclear weapons production and stressed a willingness to use them for offensive and defensive purposes. Alongside North Korea’s new nuclear policy law and declaratory policy — combining specificity with ambiguity regarding when and how North Korea would threaten and use nuclear weapons — the regime will work to perfect a multifaceted and survivable nuclear and missile threat, leaving many things to doubt in the minds of ROK and U.S. policymakers.

The prospects for negotiations in this context are, simply put, not good. North Korea’s recent actions have violated the spirit and letter of the Comprehensive Military Agreement (CMA) between the two Koreas, an important outcome of earlier talks. U.S.-ROK military exercises have so far upheld the CMA, but Seoul has begun its own legal process of walking back its commitment to the agreement. The ROK defense ministry also reportedly plans to reinsert the “enemy” designation for North Korea in its Defense White Paper (it had disappeared during diplomatic negotiations in 2018-2020). In turn. Kim Jong-n has called the ROK North Korea’s “undoubted enemy.” Meanwhile, the Yoon administration’s “audacious” initiative for inter-Korean engagement and North Korea’s denuclearization has been met with derision and invective from the North.

Finally, as the U.S.-ROK alliance has turned its emphasis from diplomacy to deterrence, Washington’s reassurance measures towards Seoul regarding the strength and viability of the U.S. extended deterrence commitment have provided Pyongyang the ready justification it needs to adopt its strength-for-strength formula, adjuring negotiations for the foreseeable future.

70^th Anniversary of the U.S.-ROK Alliance

The U.S.-ROK Alliance’s 70^th anniversary this year will bring an array of historical retrospectives and prospective analyses about the alliance’s future, much of which will be celebratory and rightfully so. U.S. and ROK leaders will highlight the transformation of a once asymmetric, Cold War alliance – rooted in shared sacrifice during the Korean War – into a broader and deeper partnership encompassing shared democratic and free-market values, economic linkages, and support for a rules-based international order; an alliance geared to addressing wide-ranging transnational and nontraditional challenges while harnessing emerging technologies and people-to-people ties.

Yet, in memorializing the alliance’s history, foundational documents, and institutional underpinnings, U.S. and ROK leaders will also have to navigate clashing perspectives. Amid North Korea’s advancing capabilities and worsening U.S.-China relations, such differences may come to the fore as the allies reexamine longstanding assumptions about the proper division of labor within the alliance and reassess whether existing alliance arrangements for the defense of South Korea and stability of the region are consonant with rapidly shifting strategic conditions.

Moreover, while promoting the evolution of the alliance beyond the Korean Peninsula – as a global comprehensive strategic alliance and strategic economic and technology partnership – U.S.s and ROK leaders will need to craft a mutually agreeable definition of economic security. They will have to maneuver between hyper-partisanship and economic nationalism at home and fracturing and reorientation of economic networks abroad. In sum, the longevity and maturation of the alliance that many will understandably celebrate, may well be tested like never before.

Adjusting the Inflation Reduction Act

Since its passage last year, the electric vehicle provisions of the Inflation Reduction Act have been a significant source of tension in U.S.-Korea relations. Designed to reduce U.S. greenhouse gas emissions by 37-41 percent from 2005 levels by 2030, the Act attempts to incentivize demand for electric vehicles in the United States by eliminating the previous cap that limited the existing $7,500 tax credit to the first 200,000 electric vehicles sold by each manufacturer.

However, the Inflation Reduction Act also placed new restrictions on the sale of electric vehicles by requiring that to be eligible for the tax credit they be assembled in North America and beginning in 2023 meet new standards for the content of minerals and components in their batteries. With Hyundai and Kia’s new U.S. based electric vehicle assembly plant not set to open until 2025, Korean electric vehicles are no longer eligible for the tax credit. While Korean electric vehicle battery makers are the leaders in the development of new battery facilities in the United States, they will need to adjust their supply chains rapidly to meet the law’s content requirements.

The Biden administration has already signaled that electric vehicles sold to leasing companies will not need to meet the new assembly and battery content requirements, but the key issue will be whether the final regulations due in March will go further to meet the concerns of Korea and other partners on the assembly and battery content provisions, or require legislative changes by Congress.

Efforts to Deepen Digitalization in South Korea

As one of the most technologically advanced countries in the world, South Korea has been transforming it’s public and private sectors and we will see more in 2023.

Since taking office, President Yoon Suk Yeol has been pushing for a “Digital Platform Government” – a single digital platform that will consolidate all government agencies and provide transparent and efficient public services using AI, big data and cloud computing.

A presidential committee for this project was launched last fall, drawing a group of experts from both public and private sectors, and they will unveil a roadmap with specific goals and tasks by March.

Local governments have also been playing a part in digital transformation. For example, the Seoul Metropolitan Government has official launched its own metaverse platform this year to provide city services and will eventually expand to “business, tourism and cultural offerings.”

On the commercial side, South Korean companies across different industries have been experimenting with different technologies. The Korean entertainment industry, especially, has been very proactive for years, utilizing online concerts and fan meetings to forming virtual K-pop group and virtual influencers ahead of other countries.

However, as the Kakao Talk outage in last October demonstrated, proper security measures must be put in place to prevent another chaos and disruption in the services and protect individuals’ data. How the public and private sector balance the need for a free flow of data and safe consumer usage will be another area to watch.

As expressed during President Yoon’s speech at Davos, South Korea wants to contribute to establishing a global digital order and it will be interesting to see what rules and standards they will set both domestically and globally in 2023.

Prospects for South Korean Soft Power

2022 was a big year for South Korea pop culture exports, particularly K-pop, K-dramas and cinema. Netflix drama Squid Game brought home a Leading Actor Emmy, a BTS member performed at the World Cup Opening Ceremony, and films Broker and Decision to Leave were rewarded at the Cannes film festival. According to Brand Finance Global Soft Power Index, South Korea ranked 12^th in global national branding in 2022.

While there are concerns about the sustainability of the popularity of Korean music and film, pop culture is merely one outlet through which South Korea can expand soft power. Here are two areas to watch in 2023:

First, growing investment in technology and information, particularly the development of emerging technologies. South Korea is already a leader in 5G and cybersecurity. Focus on online platforms during the pandemic allowed for global expansion of creative content, and Korea is one of the first national governments to invest in the metaverse.

Second, there is room for further cooperation with Southeast Asia. While K-pop is already popular in Indonesia and the Philippines, the implementation of South Korea’s new Indo-Pacific strategy will provide Seoul with an opportunity to expand its soft power in areas like climate change, development, and human rights.

Busan’s Bid for the 2030 World Expo

South Korea has been all-in on Busan’s bid to host the 2030 World Expo. The election of the host country will take place in November this year at the General Assembly of the 171 Bureau International des Expositions (BIE) member states on the principle of one country, one vote. Busan’s leading competitor, Riyadh, said it has already earned support from more than 60 countries and organizations including China, France, some African nations, the intergovernmental Caribbean Community, and the Organization of Islamic Cooperation. Busan was far behind Riyadh in the beginning, but recently expressed confidence saying that the number of supporting countries has increased to 30 while Riyadh’s support remains stagnant. It is known that about 90 countries have yet to express their position. Busan’s efforts to garner support are focused on developing and underdeveloped countries in the pacific islands, Africa, and Latin America. In keeping with this strategy, Busan emphasized that South Korea’s 2023 budget for Official Development Assistance (ODA) has tripled compared to last year. The Expo has been described as an economic and cultural Olympics. Hosting the Expo in Busan would provide South Korea with a unique opportunity to share its economic success story with the world and showcase the now global reach of its culture.

South Korea’s Indo-Pacific Strategy

In December 2022, Korea published its “Strategy for a Free, Peaceful, and Prosperous Indo-Pacific Region,” to fit on the shelf alongside the Indo-Pacific Strategy documents of the United States, Japan, European Union, NATO, France, Canada, and others.  The strategies have more similarities than differences.  In a way, they collectively make up for the lack of a regional security structure.  Read together, they constitute a virtual “Pacific Charter.”

What distinguishes Korea’s Indo-Pacific Strategy document are the details of its diagnosis and policy prescription.  The challenges are increasing security instability, democratic backsliding, challenges to the rule of law and human rights, supply chain fragilities, and a spread of economic protectionism. “The fabric of the international free-trade order is unravelling.”  The strategy paper does not explicitly state that China is challenging security, the rule of law, and human rights—nor that the United States is disappointingly turning away from free-trade—but those can be inferred.

The strategy’s policy prescription is that Korea should strengthen its ties to a list of countries about which it is explicit: Japan, Australia, India, ASEAN, the EU, NATO, France, Germany, and the UK. It describes these as “future-oriented partnerships.”  The U.S.-ROK Alliance remains “the linchpin for peace and prosperity on the Korean Peninsula.”  In Korea’s Indo-Pacific Strategy, the Alliance is necessary, but not sufficient, to secure Korea’s interests.

South Korea’s Relations with Japan  

Despite fraught relations in recent years due to continuing disputes over historical issues, the Yoon administration has made improving relations with Japan a priority.  South Korea has worked to increase security cooperation and resumed anti-submarine exercises with the United States and Japan last conducted in 2017. Seoul has also worked to better integrate Japan into its foreign policy strategy. South Korea’s recently released Indo-Pacific strategy calls for a forward looking relationship with Japan and views Tokyo as a critical partner for cooperation in the Indo-Pacific. The strategy also calls for increasing U.S.-Korea-Japan trilateral security cooperation in response to North Korea’s growing missile and nuclear threats, along with the resumption of a trilateral summit between South Korea, Japan, and China to improve regional cooperation in Northeast Asia.

However, progress on these issues may hinge on reaching an amicable resolution to the issue of legal cases regarding Japan’s use of Korean forced labor during World War II. The South Korean Supreme Court has for the moment delayed issuing a ruling on the liquidation of Japanese assets to compensate the victims, but avoiding the potential liquidation of assets is considered critical to improving relations with Japan. The Yoon administration has established a consultative committee to develop a proposal for the addressing this issue, but the administration’s initial recommendation to establish a compensation fund financed by South Korean firms has not been well received by the victims and their lawyers.

Mark Tokola is Vice President at the Korea Economic Institute of America, Robert King is a Non-Resident Distinguished Fellow, Clint Work is Fellow and Director of Academic Affairs, Sang Kim is Director of Communications, Hae Kyung Ahn is Senior Advisor. Mai Anna Pressley is Office Manager, Andy Hong is a Progam Officer, and Troy Stangarone is Senior Director and Fellow. The views expressed here are the authors’ alone.

Image created by Sang Kim with photos from Shutterstock, Wikimedia Commons, the White House photostream on flickr Creative Commons, and an image from Shutterstock.