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Money Matters in Washington and Seoul: The Military Cost-Sharing Wrangle Grows More Bitter
By Myung-bok Bae

 

 

"DO NOT TALK about money between friends," goes a Korean proverb on the wisdom of avoiding this delicate subject because it can erode trust even among the closest of friends.

 

South Korea and the United States are allies. In layman's terms, they are close friends. Despite this, they are now engaged in a harsh quarrel over dollars and cents during fierce negotiations being conducted without concessions from either side. And this is not the first time this has happened. South Korea and the US have been arguing over money every two, three or five years since the 1990s. It is a ritual that has played out each time the two countries have entered into talks about renewing the so-called Special Measurement Agreement (SMA) on how to split the bill for stationing US forces on the Korean Peninsula.

 

In principle, the US should bear the full cost as stipulated in the Status of Forces Agreement (SOFA), which was concluded in 1967 in accordance with the South Korea-US Mutual Defense Treaty, signed at the end of the Korean War. Article 5 of SOFA states that the Korean side will provide the US with land and facilities while the American side will be responsible for the expense of stationing US forces. At the time the two countries negotiated the agreement, South Korea was one of the poorest countries in the world. Even though it wanted to share costs, it could not afford to. Article 5 therefore reflected the dire economic condition of South Korea in the 1960s.

 

The story changed with South Korea's rapid economic development in subsequent decades, especially since the 1980s. Under the administration of US President Ronald Reagan, meanwhile, the US invested heavily in defense spending in order to widen the military gap with the Soviet Union. As a result, the US started to suffer significant budget deficits mainly due to this military spending. That's when the US began to urge South Korea to share the stationing costs for US forces there. As South Korea depends on the US to counter North Korea's military threat, it was hard for Seoul to refuse Washington's demand. Both sides then set aside Article 5 and adopted the SMA, which was first agreed in 1991 and has been periodically renegotiated.

 

The eighth SMA, which was valid for five years, was agreed in 2008 and expires this year. South Korea and the US are thus currently negotiating the terms of the ninth SMA, which will take effect from next year. The negotiations will decide whether the new agreement will last for two, three or five years. As of now, the negotiators appointed by their respective governments are alternating between Seoul and Washington for intense discussions. South Korea wants to give as little as possible, while the US wants to get as much as possible. Adding urgency to the US position are the so-called sequester cuts to federal spending imposed earlier this year, which call for $600 billion in US defense spending reductions over the next 10 years.

 

Eventually, it is a question of the burden that falls on each country's taxpayers. The more taxes South Korean citizens pay for basing costs, the less US citizens will have to pay, and vice versa. Needless to say, this is an ugly thing between friends. Theoretically, South Korea, as the giver in this equation, should have the upper hand in these negotiations. But that's far from the reality.

 

 

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South Korea's contribution to stationing costs for United States Forces Korea (USFK) has increased from 107.3 billion won in 1991, the year of the first SMA, to 869.5 billion won this year (from $98 million to $800 million). Up to now, Seoul has paid a total of 12.1 trillion won to the US. In the same period, South Korea's defense budget has increased by 4.6 times from 7.4 trillion won to 34.6 trillion won, whereas Korea's share of US stationing costs expanded by 8.1 times. The cost sharing as a portion of South Korea's total defense budget has risen from 1.5 percent to 2.5 percent. The 869.5 billion won that Korea is paying in 2013 to support 28,500 American soldiers on Korean soil is equal to 1.45 times the total personnel costs for Korea's own 441,500 conscripted soldiers.

 

It is understandable that South Korea should pay a portion of the costs to maintain US forces in the country, because a considerable part of Korea's national defense is dependent on the US. Despite the fact that this burden sharing is technically a violation of SOFA, there are very few South Koreans who would encourage the radical step of not paying a penny.

 

The problem is the US method of calculating the costs and contributions. As things stand now, the US unilaterally proposes the non-personnel stationing costs (NPSC), and Seoul and Washington then negotiate South Korea's contribution.

 

Over all these years, the US has never actually explained the details of the NPSC. Washington offers a general breakdown, such as wages for Korean personnel working on US military bases, military facility construction and logistical support costs, along with the total amount. It has never explained how the amounts are calculated. South Korea now pays 40 to 45 percent of the total cost, but Washington wants to raise this share to 50 percent. The South Korean government is no longer willing to accept the concept of the NPSC, because there is no way to verify such a unilateral cost breakdown without sufficient transparency. Also, considering the indirect cost of maintaining US forces stationed in South Korea, the actual contribution from Korea is far higher. Since the two sides have disagreements on the cost-sharing formula, the current negotiations are not going smoothly.

 

To make matters more complicated, since 2002 the US has not spent the full budget for military construction costs provided by Korea, electing to save the unspent balance. Up to 2012, a total of 761.1 billion won had been accumulated. When excessive cost-sharing became an issue, the US diverted the funds to help pay for the relocation of the 2nd Infantry Division from Camp Casey, north of Seoul, to Camp Humphreys, about 70 kilometers south of the capital. The US seems to think that it can use the money however it wants once in its pocket. After a planned construction project was canceled due to the 2nd Infantry Division relocation, the US just kept the money. Strictly speaking, that is a misuse of South Korean public money and a form of misappropriation. It goes against the base relocation agreement, which says that the US would pay for the relocation costs of the 2nd Infantry Division.

 

But the South Korean government tacitly approved this without informing its citizens. The National Assembly has been a rubber stamp, approving the cost-sharing without thoroughly reviewing the details. This scandal is difficult to explain without suggesting there is a prejudice that prevails in both the National Assembly and the government, both of which feel obliged to accept whatever America decides. Some Koreans criticize this attitude by referring to it as "clientitis." They also insist that Korea's cost-sharing burden should be reduced, considering that the mission of US forces in Korea has been transformed from solely the defense of South Korea to being a swift mobile regional task force based on the concept of strategic flexibility.

 

Perhaps it's not very courteous to be so picky about money with a trusted ally. We may end up paying more by being excessively inquisitive or suffer some kind of negative impact on our broader national interest. Some argue that anti-American elements are trying to undermine the alliance by quibbling about dollars and cents. Nevertheless, we need to know how our taxpayers' money is spent. If we continue blindly to share the cost of US forces in Korea, it will only fan distrust and antagonism toward Washington, making the South Korea-US alliance unstable.

 

The administration of President Park Geun-hye emphasizes principle, trust and international standards. If that is the case, then we need to take these cost-sharing negotiations seriously. By establishing a standard for agreement, we need to be meticulous and transparent. Room for further controversy should be eliminated by stipulating that the budget diverted to the relocation of the 2nd Infantry Division, for example, originates from South Korea. We must part with the old practice of giving Washington whatever it wants.

 

The South Korean ambassador to the negotiations insists on correcting the controversial terms of the SMA by shifting the present amount-based negotiation to a purpose-based negotiation, and also dealing with the question of leftover money. However, the Americans reportedly are insisting on the amount-based method and demanding a total contribution of 1 trillion won starting next year. If the US demand is accepted, it is certain that South Korean public opinion will strongly oppose it.

 

The best policy is not to deal with money between friends, but when it is unavoidable, the deal must be clear and transparent. Ambiguity results in mutual distrust and dissatisfaction. When close friends must talk about money, the discussion should be precise and detailed, leaving no gray areas. Otherwise, trust will be in danger. This is wisdom to be remembered by both Seoul and Washington.

 

Myung-bok Bae is an editorial writer and diplomatic correspondent for the JoongAng Ilbo in Seoul.

 

 

Back to Issue
    South Korea and the US are steadfast friends, bound by an alliance, shared values and a decades-old commitment to stability on the Korean Peninsula and in Northeast Asia. But even that long held friendship can be sorely strained when the testy issue of money comes into play. It’s time for transparency from the US, writes Myung-bok Bae
    Published: September 2013 (Vol.8 No.3)
    About the author

    Myung-bok Bae is an editorial writer and diplomatic correspondent for the JoongAng Ilbo in Seoul.

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