Perilous Road to Reunification

To say the cold war is over is to ignore a potentially dangerous reality: the final chapter is still being played out on the divided, heavily armed Korean peninsula. Korea, one of the true flashpoints of the post-Cold War world, is approaching a momentous juncture–one comparable to the partition of 1945 or the terrible war of 1950-53. For Korea is now heading toward reunification. The question is no longer whether the peninsula will be reunited, but when?

Plausible arguments support the proposition that a peaceful denouement to the division of Korea is within reach in the coming decade. (Among others, the presidents of both North and South Korea officially subscribe to that view.) But, equally, there are grounds for concern about violent eruptions on the path to unification, and reasons to expect full integration to be longer, not shorter, in the making. Though the ultimate outcome may be the same, Korea is unlikely to enjoy a replay of the happy, almost simple drama so recently witnessed in Germany.

Several factors promise to make the road to Korean reunification far more complex and protracted than that of West Germany swallowing up East Germany: the degree of military mobilization on both sides of the border; the question of North Korea’s indigenous nuclear weapons capability; the disinclination (and inability) of China–North Korea’s remaining patron–to cut a deal for reunification (in contrast to the multi-billion-dollar agreement struck between Bonn and Moscow under Soviet leader Mikhail Gorbachev). That said, however, official Washington is not paying adequate attention to developments in this sensitive, strategically important region and is ill-prepared to foster an acceleration of the reunification process.

At the end of World War II, when the United States and the Soviet Union drew the fateful line dividing the country–a line intended merely to delineate temporary administrative zones for processing the surrender of Japanese forces–the Korean peninsula was so remote that officials at the State Department could hardly locate it on the map. Today the Republic of Korea is America’s sixth largest trading partner (ranking above France, Italy and all of Scandinavia), and the United States itself has over 35,000 troops stationed on South Korean soil. Almost a million American citizens are of Korean heritage. Yet America’s grasp of Korean affairs continues to be woefully inadequate.

Proof of this assertion is America’s record of postwar policy. Nearly all of the great events that have defined Korea since the peninsula’s partition have caught policymakers unprepared. America was surprised by North Korea’s sudden attack against and near conquest of South Korea in 1950; amazed in the 1960s when an impoverished aid-dependent South Korea embraced export-oriented economic growth; shocked in 1979-80 when South Korea’s authoritarian but seemingly stable government was convulsed by assassination, “constitutional coup” and provincial uprising (suppressed by the army at a heavy toll of civilian casualties).

America has also been surprised unpleasantly, but repeatedly, over the past two decades by the scope of North Korea’s ongoing military buildup. Only now has Washington belatedly realized that this country of barely 20 million may have more than 1.2 million men under arms (with many of its troops and much of its material forward-deployed) and a nuclear program capable of producing atomic weapons within perhaps a year or two.

If the United States is to avoid such further costly surprises it must prepare for Korea’s impending challenge. In this last bastion of the Cold War the circumstances of the reunion are impossible to foretell: they could be filled with joy and jubilation or, just as easily, with tragedy and suffering. The United States must be ready to contribute actively to a free and peaceful reunification in Korea and a successful reconciliation of Koreans, or to suffer the regional and possibly global repercussions that failure in this effort would portend.

From Father to Son: A Bleak Future

For a country about which so little information is available the international picture of North Korea is remarkably clear. It is seen as an extraordinarily regimented society. It has fashioned a suffocating cult of personality promoting the “Great Leader” Generalissimo Kim II Sung, and now his son, “Dear Leader” Kim Chong II, who is designated heir apparent to Pyongyang’s communist throne. It extols an official ideology known as chuche, a doctrine with a crude racialism and a heavy emphasis on the national destiny of the Korean people. The regime and its agents, finally, are today perhaps best known internationally for their alleged complicity in incidents of terrorism, drug-smuggling and other unsavory activities.

Because North Korea presents such an unattractive face to the outside world, it has often been misjudged. Of all Asia’s communist states (including the U.S.S.R.), only North Korea avoided famine in the course of its collectivization of agriculture. For decades North Korea’s industry apparently outperformed South Korea’s. North Korea’s foreign policy skillfully played its communist neighbors–China and the Soviet Union–against one another for more than a generation, extracting aid from both while deferring to neither. Finally, Kim II Sung’s talents may be inferred from his political longevity. He has held supreme power in North Korea for more than forty years; no other world leader has enjoyed such a tenure.

For all these indications of past success North Korea’s future is bleak. Its strategy for development–and for competing against the South–have led to a dead end.

At one point in the 1970s North Korea‘s quest for international legitimacy looked promising. But North Korea has lost that diplomatic competition, and lost it badly. The very fact of the 1988 Olympics in Seoul, and the broad international participation in those games, underscored North Korea’s growing international isolation. Even North Korea’s September 1991 entry into the United Nations is a sign of failure, not a mark of success: North Korea only applied for membership after learning that China, perhaps its most reliable ally, would no longer veto South Korea’s pending bid. (In the intervening months Beijing has normalized its relations with the government in Seoul.)

Pyongyang’s international fortunes have been set back still further by the disappearance of the Warsaw Pact states, and the simultaneous emergence of its most feared and hated enemy, the United States, as the world’s single and unrivaled superpower.

North Korea’s economic prospects are scarcely better. Rapid as its growth may have been in earlier years, opportunities for material advance are now exhausted. The “extensive” approach to economic growth has reached its limits. The adult population has been fully mobilized; there is no more “surplus” labor to direct toward factory, field or barracks. Additional investment, for its part, must come at the expense of military spending or consumption. But the former is inviolate, and the latter has already been assiduously squeezed. Additional burdens have been placed on the economy by massive showpiece projects of questionable economic merit,such as the West Sea Lock Gate near Nampo and the ongoing facelift of Pyongyang.

Per capita growth in North Korea may have stopped in the mid-1980s; Soviet sources say the economy was in absolute decline by the late 1980s. There-after–with the revolutions of 1989 in eastern Europe and the crisis of the Soviet state–the North Korean economy was shaken by an unexpected dislocation. With the end of the Soviet bloc North Korea‘s trade with these former allies collapsed. Since the advent of hard currency terms of payment last year, for example, the former Soviet Union has all but ceased exporting to North Korea. Just before its dissolution the Warsaw Pact had accounted for well over half of North Korea’s trade turnover. The sudden end to this commerce has been devastating. It has deprived North Korea of both its foreign markets for low quality machinery and consumer goods, and of the spare parts and equipment necessary to keep Soviet bloc facilities and infrastructure functioning.

In theory Pyongyang could cope with this particular crisis by turning toward market-oriented economies. But North Korea has already poisoned its commercial relations with Western countries by its default on international loans in the 1970s and its intransigence with private creditors ever since. In effect North Korea is reduced to bartering for goods on the world market, and there is little scope for expanding such activities under current circumstances.

Yet in a tightly controlled police state neither declining standards of living nor food shortages should be presumed to presage an uprising against the government, much less its overthrow. Perhaps more unsettling to Pyongyang than the immediate impact of today’s economic woes may be the realization that there is simply no way out. Foreign economic resources might offer the regime some breathing space, but they are unlikely to be forthcoming in any volume. Even under the luckiest of circumstances the regime is unlikely to reattain its pre-1989 foreign balances–and economic prospects at that time were hardly enviable.

It is, of course, possible that the North Korean economy could be resuscitated through a far-reaching liberalization. But Kim’s government to date has completely rejected that option. For Pyongyang such a recalcitrant posture is by no means irrational. Far from it: the very measures that might rescue North Korea’s economy could doom its political system.

From Kim’s perspective it is economic experimentation that undermined the regimes of eastern Europe. Perestroika, in his view, not only occasioned economic deterioration in the U.S.S.R. but brought on the death of Soviet communism. Even the Chinese approach, while perhaps more satisfactory in its material outcome, made possible the Tiananmen protests. In the context of its mortal struggle with Seoul any such protests in Pyongyang would pose incalculable dangers to the regime.

For the Kim II Sung regime the lessons of history are unequivocal: to “reform” is to die. Kim II Sung may be a mysterious political personality, but he has never evinced suicidal inclinations. Desperate though his current situation may be he seems determined not to risk making it worse by false moves. Thus it seems likely that North Korea will forswear any reforms worthy of the name and instead simply attempt doggedly to hold on. As if to underscore this intention North Korea’s media are today full of talk about “the superiority of our style of socialism.”

The 80-year-old Kim will have to relinquish power in the not-too-distant future, and, according to the official script, “Dear Leader” Kim Chong II will assume his father’s mantle. Preparations for the succession have been underway for almost 20 years. From Kim Chong II’s emergence as the celebrated (though never named) “Party Center” in 1973, through the 1980 congress that featured his formal elevation within the party, and on through his assumption of the rank of marshal over the country’s armed forces in April 1992, there have been continuous indications that “Dear Leader” was methodically consolidating power during his father’s lifetime. By the official version the transfer of supreme authority to Kim Chong II will be little more than a formality.

Nonetheless Kim II Sung’s exit from politics will be a shock and crisis for the regime–most assuredly, a greater one than the global events of 1989-90 that apparently sent Kim Chong II into hiding. No matter how carefully or forcefully a hereditary transition is orchestrated, there is little reason at present to expect a reign by Kim Chong II to be either stable or long.

The Israeli experience

A second example of North Korea’s interest in engagement occurred five years ago, when North Korea, in negotiations with Israel, agreed to limit its missile program. North Korea reportedly initiated the contact by requesting Israeli economic assistance and help in managing its gold mines. The deputy director of Israel’s foreign ministry visited Pyongyang in October 1992 to discuss the aid–and to protest North Korean sales of missiles to Syria and Iran.

Subsequent contacts led Israel to offer a package worth an estimated $1 billion, which included buying a North Korean gold mine near Unsan and supplying thousands of trucks. In return, North Korea would stop selling missiles to Middle Eastern countries.

Under U.S. pressure, Israel backed away in March 1993, after Pyongyang announced it was pulling out of the Nuclear Non-Proliferation Treaty. But in June 1993, after North Korea suspended its decision to withdraw from the treaty, Israel resumed negotiations–motivated, perhaps, by concerns over North Korea’s test of a No Dong missile in May 1993 and reports of a visit by an Iranian delegation in April to arrange for the purchase of 150 No Dongs.

In August of that year, Israel again bowed to U.S. pressure and backed away. (At the time, the United States was negotiating with North Korea on nuclear issues, and it believed that Israel’s initiative might compromise its efforts.)

By March 1994, however, reports surfaced of continued Israeli meetings with North Korean officials and of an agreement in which Israel would help raise $1 billion from Jewish business leaders in the United States for civilian projects in North Korea. In return, North Korea would not ship No Dong missiles to Iran.

But that spring, U.S. concerns over the North Korean nuclear program peaked, and the United States apparently stepped in to block any North Korean-Israeli missile deal.

The history of the Israeli-North Korean negotiations seems to show that Israel believed North Korea was negotiating in good faith, and that it would be possible to reach an agreement limiting missile sales to countries like Iran.

North Korea has also taken a number of smaller but unprecedented steps in the past several years–such as allowing joint searches with the United States for the remains of soldiers from the Korean War–that suggest it is rethinking its relationship to the rest of the world.

Today North Korea has a number of incentives for negotiating limits on its missile program.

A decade ago, missile sales brought North Korea significant income and supplies of oil from the Middle East, but this is no longer true. Persistent reports that North Korea’s sales of missiles and missile technology bring in upwards of $500 million annually hark back to the 1980s, when the Iran-Iraq war resulted in high demand for Scuds.

North Korea may now see that the greatest value of its missile program is as a bargaining chip. Pyongyang undoubtedly sees its nuclear and missile programs as two of the very few things it can use to bargain for an easing of sanctions and significant amounts of economic assistance.

Moreover, North Korean leaders presumably recognize that to improve relations with other countries in an attempt to improve their nation’s economy, they must reduce international concerns about North Korean weapons programs.

Missile talks goals

As part of a threat-reduction package, the United States should seek a complete ban on the sale or transfer of North Korean technology for all ballistic and cruise missiles, as well as a ban on technical assistance for such systems.

History suggests that missile transfers can be monitored reasonably well. Verifying an end to technical assistance would be more difficult, but it is important to build into any agreement a clear prohibition on these activities.

In addition to ending missile transfers, the goal should be to stop future development of North Korean missiles and require the destruction of existing missiles and facilities for missile development and production, at least for missiles with ranges greater than a given threshold. A first step would be to negotiate a ban on the flight testing of missiles, which could be readily verified by U.S. satellites.

An agreement that banned further flight testing of missiles would, from a Western perspective, place a meaningful limit on the future development of North Korean missiles. It would leave the Taepo Dong 1 missile with a single flight test, and the longer-range Taepo Dong 2 with none.

A flight-test ban could be combined with other measures intended to restrict missile development, such as shutting down missile research and development facilities and banning ground tests needed to develop new engines. While satellite monitoring could help verify some of these activities, additional verification measures would have to be negotiated.

If North Korea insists on a two-phase agreement, first dealing with missile sales and only later with tests, the United States should insist on a moratorium on North Korean flight tests while talks proceed.

Measures to freeze development would allow North Korea to retain its existing missile force for the time being. Such an agreement would therefore have the character of the Agreed Framework: First, freeze the program; then attempt to roll it back.

Credibility gaps

North Korea’s credibility in abiding by its agreements is frequently questioned in the United States. But from North Korea’s point of view, the Agreed Framework has led to a serious credibility problem for the United States as well.

North Korea has seen that many members of Congress are hostile to the agreement. As a result, the Clinton administration is now in technical violation of the agreement because it is behind schedule in providing the heavy fuel oil the United States is obligated to supply under the agreement, even though it represents only a relatively modest amount of money ($3040 million a year). Further, there have been repeated congressional calls for cutting all funding for the accord.

Moreover, North Korea apparently believed the Agreed Framework was the beginning of a process of engagement with the United States, which would lead to an easing of sanctions. That has not happened. It now sees the United States as interested only in capping North Korea’s nuclear weapons program.

Further, from North Korea’s perspective, the United States lacks the political will to significantly change the relationship between the two countries. This may be leading to North Korean cynicism about negotiations and U.S. intentions–or about presidential ability to deliver on future promises of political normalization and economic assistance.

Thus, North Korea may believe that without its ability to threaten, to make headlines, the prospects for U.S. engagement or assistance would remain small. Some of North Korea’s actions may be directed toward creating crises intended to refocus U.S. attention on diplomatic engagement.

The activity around the suspected nuclear site in Kumchang-ri may be, in part, a reaction to a perceived lack of U.S. commitment to the Agreed Framework. It may be designed to raise the priority of the issue and get the U.S. re-engaged. Thus, the Kumchang-ri issue might best be resolved by including it as part of a set of broader discussions about strengthening controls on nuclear materials and limiting missile capabilities.

Similarly, the missile test in August was widely reported as an effort, in part, to focus U.S. attention on the missile issue, in an attempt to increase the pressure for negotiations.

While there have been several meetings between U.S. and North Korean negotiators on North Korea’s missile program, the United States has not tried to put a broad package on the negotiating table. North Korea seems unwilling to negotiate in earnest on its missile program until it believes the United States is serious about constructive engagement on a wider scale.

The United States should put high-level political support behind a policy of engagement and put together a negotiating package that conveys to North Korea a commitment to the negotiating process. Only then can the United States begin to determine whether such an approach may work.

Late last year, the Clinton administration took a step in the fight direction by appointing former Defense Secretary Bill Perry as U.S. policy coordinator for North Korea. Perry could help the administration develop a unified policy position and generate high-level support for an engagement policy.

The package

The U.S. negotiating package should consist of a set of phased and linked measures that would create strong incentives for North Korea to abide by the terms of the agreement. A plan for that package was developed in an October 1998 meeting organized by the Union of Concerned Scientists. (A report on the meeting can be found at www.ucsusa.org.)

A key part of the package would be political. According to experts on North Korea, such as Tony Namkung of the Atlantic Council, the North Korean desire to be treated with respect and to begin a process of normalizing relations with the United States is even greater than its desire for economic assistance. To be sure, it is also concerned about its economy and its ability to feed its people, and measures that would help in these areas would be needed in a negotiation package. But political normalization with the United States is the key issue that ultimately must be on the table.

Last June, North Korea publicly said that it was willing to discuss limiting missile development, not just sales, “after a peace agreement is signed between the DPRK [the Democratic People's Republic of Korea] and the United States and the U.S. military threat is completely removed.”

It may be significant that North Korea conditioned this limit on signing a “peace agreement,” not a formal peace treaty, and on removing the “U.S. military threat,” not U.S. troops. This wording suggest some flexibility.

(Indeed, some experts who have met privately with North Koreans believe these are signs that North Korea wants the United States to remain engaged in the region, to play a stabilizing role.)

To emphasize the political aspects of the package, a high-level U.S. envoy, almost certainly Perry, should travel to North Korea and declare a U.S. desire to end the era of adversarial relations. The United States should also declare its readiness to open a liaison office in Pyongyang and to have North Korea do so in the United States. (The latter step w .as expected to have occurred by the end of 1998, but the plan was scutfled by North Korea’s missile launch in August.)

Beyond that, there are a number of measures that could be part of a package–although, given the present mood on Capitol Hill, anything that requires Congress to appropriate funds may be difficult to offer.

Some amount of hard currency may be necessary for an agreement banning missile sales. North Korea has said that its “missile export is aimed at obtaining foreign currency.” To end exports, it said, the United States would have to lift its economic embargo “as early as possible” and compensate North Korea for its foregone sales. (North Korea is reportedly seeking $1 billion a year for three years.)

Israel has in the past shown an interest in providing hard currency to North Korea as well as assisting in lining up trade and foreign investment as a way of stopping North Korean missile sales to the Middle East. The United States should urge Israel to provide such assistance as part of a U.S. package for North Korea.

Compensation, however, could take other forms, including:

• The United States could waive all sanctions associated with the Trading With the Enemy Act (TWEA), an action the president can take. This would open U.S. markets to North Korean companies or companies doing business there. Easing sanctions would be an important sign of a U.S. commitment to a process of political and economic normalization.

Further, dropping TWEA sanctions would be important even it if does not initially lead to a significant opening of direct U.S. trade and investment. It would allow the United States, for instance, to grant North Korea an annual textile quota and permit South Korean and other foreign investors now being courted by Pyongyang to export textiles and other products made with low-wage North Korean labor to the U.S. market. That would allow North Korea to earn foreign exchange and it could encourage further opening of North Korea to foreign investment.

• The United States could make a major contribution to the United Nations Development Program initiative intended to help North Korea grow more of its own food through measures such as the repair of irrigation systems, assistance with fertilizer, and the like. The program was developed with North Korea’s participation, and would cost $300 million over three years. The United States could also help solicit funds for the program from a number of countries that would like to see an alternative to making substantial food contributions for the indefinite future. South Korea, the European Union, China, and perhaps eventually Japan would likely contribute.
• The United States could also help North Korea improve its mining sector. Minerals are one of North Korea’s main potential resources for foreign exchange. The United States could help establish a fund to assist North Korea in developing its mining technology and infrastructure. In turn, this might encourage private capital to help develop the mining sector.

A pragmatic approach

The experience with Iraq highlights the difficulties of trying to limit weapons development in an uncooperative state. Fortunately, there is evidence that an approach based on incentives and cooperation might work with North Korea.

Incentives to foster cooperation have certainly been seen as legitimate and useful in other contexts, such as the recent offer of $3 billion to the Palestinian Authority by the international community, of which the United States contributed $500 million.

Ultimately, of course, the United States may conclude that a strategy of containment and isolation is the best it can do. But it makes no sense to start with such a strategy.

Economic aid and international respect may be the keys to ending the North’s ballistic missile program.

IN THE PAST DECADE, NORTH KOREA has gained a reputation as an “outlaw” state. In the early 1990s, evidence surfaced that North Korea had built a facility that might be used to separate plutonium. Tensions between the United States and North Korea over the nuclear issue nearly erupted into war in the spring of 1994. But a negotiated settlement–the Agreed Framework of October 1994–stopped possible plutonium production and tamed the talk of war. However, it remains controversial in the United States.

In the 1980s, North Korea began to build copies of the Soviet Scud-B missile, which had a range of about 300 kilometers, along with an improved version with a 500-kilometer range. It sold hundreds of these missiles to states in the Middle East, especially Iran and Syria.

In 1993, North Korea tested a new missile, the No Dong, with a reported range of 1,000-1,300 kilometers with a one-ton payload, which it apparently sold to Pakistan. It reportedly has helped Iran develop a similar missile.

And last August, it tested a three-stage missile, the Taepo Dong 1, which carried a small payload several thousand kilometers. Conducting the test over Japan without notification struck almost everyone as provocative.

North Korea’s bombastic and threatening rhetoric toward the outside world and its history of sending miniature submarines and spies into South Korean territory have compounded concerns about its hostile intentions. Further, North Korea remains a closed society, and the outside world has a poor understanding of its policy-making process.

Some argue that the United States should increase North Korea’s political and economic isolation in an attempt to further weaken the country and either force reform or hasten its collapse. In the meantime, the United States would plan to deter or repel any military attacks by North Korea.

Proponents of this approach maintain it is effective because North Korea is on the brink of collapse, now that there is no Soviet Union to give it massive aid. Indeed, its economy is in desperate straits, declining by more than five percent a year since the early 1990s. Famine is widespread.

Support in the United States for this approach grows out of the bitter history between the two countries and the continuing military threat that North Korea poses on the Korean peninsula. The United States and North Korea do not have diplomatic relations and they formally remain in a state of war because no treaty ended the Korean War.

The United States keeps 37,000 troops (and until the early 1990s, nuclear weapons) in South Korea. Since the late 1980s, the United States has designated North Korea a “terrorist country,” and it has imposed economic sanctions that prohibit essentially all trade, except for humanitarian aid.

U.S. policy-makers commonly believe that North Korea’s leaders see increased military strength as vital to their survival. From a U.S. vantage point, these leaders are seen as reckless, unpredictable, and perhaps irrational. How could anyone expect to deal with them in other ways?

But this isolate-and-contain approach has serious shortcomings. Despite the failing economy, the North Korean regime appears capable of limping along for a long time. Further steps by the West to isolate North Korea or to threaten it militarily may actually strengthen the hand of hard-liners in North Korea and push its policy in exactly the wrong direction.

Meanwhile, collapse carries severe risks. North Korea’s neighbors worry about floods of post-collapse refugees. And they worry even more about the possibility that a regime pushed to the brink might strike out militarily in its death throes.

An alternate approach is to try to engage North Korea politically and economically, to create incentives for it to cooperate with the international community. The goal would be to reduce the military threat North Korea poses, not just to deter and contain it–and to do so in a cooperative, verifiable way.

Indeed, the economic crisis and famine may make North Korea more receptive to carrots than to sticks than it might have been a few years ago. It is reasonable to surmise that key North Korean officials may have come to believe that normalizing relations with the United States and dealing with North Korea’s economy is more important for the long-term existence of the state than is its military power.

There is, of course, no guarantee that engagement would work. But despite North Korea’s heated rhetoric and frustrating actions, there are intriguing signs that it might respond to this approach.

With the moderate Kim Dae-Jung government in South Korea, there is a window of opportunity to successfully engage North Korea. Kim has advocated engagement with the North, unlike previous South Korean leaders, and he even asked the United States to ease sanctions when he addressed Congress in June 1998. But political support within South Korea for engagement could erode if no progress is made on improving relations.

The Agreed Framework

The most important example of engagement with North Korea was the negotiation of the Agreed Framework in October 1994. This agreement remains controversial, largely because of the provision to build two nuclear power reactors in North Korea in return for the dismantling of North Korea’s existing nuclear reactors. But North Korea agreed to close its reprocessing plant at Yongbyon and has clone so under verification.

The United States says it has no evidence of production at other sites, although construction at an underground site at Kumchang-ri that U.S. intelligence believes may be nuclear-related has added to the controversy. Talks intended to resolve this important issue are continuing.

North Korea’s actions before signing the 1994 accord may also shed light on its readiness to work with the United States. From 1992 to 1994, North Korea could have pulled fuel rods from its reactor and extracted plutonium, but it did not. Some U.S. analysts and officials involved in the negotiations interpreted this apparent self-restraint as a sign of North Korea’s interest in negotiating limits to its nuclear program.

This restraint–if that is what it was–as well as the signing of the Agreed Framework would be unlikely actions if the country’s top priority was the acquisition of weapons of mass destruction.

U.S. do?

On a chilly spring evening late last March, a South Korean naval ship, the Cheonan, was conducting routine exercises in waters just off the coast of a sparsely populated island in the Yellow Sea, which Koreans call the West Sea, just 10 miles (16 km) from North Korean land. The vessel, nearly 90 yards (82 m) long from bow to stern, was named after a city in South Korea in which 98 American soldiers died during a North Korean attack 60 years ago, just after the start of the Korean War. For most of the ship’s 104 crew members, work was done for the day. The ship’s commanding officer, Choi Won-Il, had retired to his cabin and was checking e-mail.

What happened next would shock South Koreans, roil their country’s politics and contribute to a deteriorating security climate not just on the Korean peninsula but throughout East Asia–a deterioration the U.S. is now struggling to arrest. And it would eventually show, once again, the limits of American power and influence when dealing with the regime in North Korea, a government that former U.S. ambassador to Japan Thomas Schieffer describes as operating on the “Mafia model”: “If you don’t give me some money, I’ll throw a brick through your window.”

This story isn’t over. In the next few weeks, South Korea is expected to release a secret and detailed report on the Cheonan incident. TIME, exclusively, has reviewed the report, 287 pages of scientific and engineering analysis. The South Koreans insist it shows that the “only plausible possibility”–in the report’s words–is that the Cheonan was sunk by a North Korean torpedo. How the U.S. and other nations respond to the report will go a long way toward showing what the world can do to rein in the unpredictable regime in the North. And what it can’t. Or won’t.

At 9:21 p.m. on March 26, what appears to have been an explosion rocked the Cheonan. According to the report that TIME reviewed, a rush of “seawater into the boat suddenly tilted [it] to the starboard side by 90 degrees.” Damage from the blast trapped Choi, the ship’s commander, in his cabin; quick-thinking crew members lowered a fire hose to him through a hole in his cabin’s ceiling. Choi strapped the hose to his waist so he could be hauled up to deck. Within minutes, the Cheonan was sinking; 46 South Korean sailors would wind up dead.

About a month later, the South Korean government came to suspect that a North Korean “midget” submarine sank the ship. Seoul dredged up the shattered vessel in sections and recovered the remains of what it has claimed ever since was a smoking gun: a North Korean torpedo. The South Koreans convened an international joint investigative group–with representatives from the U.S., the United Kingdom, Australia and Sweden–and on May 20 went public with a summary of its findings. Though couched in diplomatic language, the conclusion was plain enough: the North Koreans were guilty of what amounted to an act of war. The Cheonan sank near the Northern Limit Line, a disputed border, but in what indisputably are South Korean waters.

Suddenly, the U.S. and the other major powers in East Asia–China, Russia, South Korea and Japan–confronted what Kim Tae-hyo, South Korean President Lee Myung Bak’s chief adviser on North Korea, acknowledges was a “security crisis.” A diplomatically tense summer has followed. Relations between the U.S. and China–North Korea’s lone ally and diplomatic patron–have been souring since late last year, when Beijing helped frustrate President Barack Obama’s push to get a binding international agreement on climate change in Copenhagen. Washington then infuriated Beijing when it announced an arms sale worth more than $6 billion to Taiwan in January, after which China shelved plans to participate in military-to-military exchanges with the U.S. At a conference in Singapore earlier this summer, a People’s Liberation Army general publicly accused Defense Secretary Robert Gates of treating China like “an enemy.”

The Cheonan sinking didn’t help. North Korea steadfastly denied that it had anything to do with the sinking, but a furious President Lee wanted to ratchet up sanctions on Pyongyang, and with U.S. backing, Seoul proceeded to the U.N. Security Council. For years, the U.S. has practically begged China to rein in its ally–particularly in the context of North Korea’s nuclear-weapons program–but just how much pressure Beijing has ever put on the “Dear Leader,” North Korea’s Kim Jong Il, has always been murky. Beijing made it plain that it was uninterested in participating in new sanctions. Diplomatic sources say at first Beijing supported only a so-called presidential press statement condemning the sinking, about the weakest step the Security Council could take. The same sources say China was less interested in the evidence than in preventing anything from destabilizing the North. “They made a political decision to protect North Korea,” says a diplomat.

Beijing worked successfully to get Moscow to back its position. Together, they eventually agreed to take a slightly tougher stance–the Security Council ultimately issued a presidential statement that condemned the attack on the Cheonan but failed to condemn the attacker. “North Korea committed an act of war and didn’t pay much of a price for it,” says Kim Dong Sung, a national assemblyman for Lee’s Grand National Party.

A Nation Misunderstood

The politics of how to respond to North Korea’s alleged aggression was an issue not just at the U.N. It also bedeviled Lee at home and eventually caused some strain between South Korea and the U.S., thanks to China’s looming (and increasing) presence in the region.

To understand the tension between Seoul and Washington, it’s important to appreciate a salient truth. South Korea is not now–and has not been for years–a poor country ruled by generals that is uniformly grateful to the U.S. for rescuing it from a communist invasion 60 years ago. It is an increasingly prosperous nation and boisterous democracy, a place where relations with the North are a core and contested political issue. Thousands of North Korean artillery batteries are trained on Seoul, just 40 miles (64 km) away. The possibility of yet another Korean war is not just a talking point. For that reason, even in the wake of an episode like the sinking of the Cheonan–which might have benefited hawks–the politics of North-South relations got complicated very quickly.

The political left in South Korea is not so much pro–North Korea (though small elements of it are) as it is deeply suspicious of the ruling Grand National Party–the political descendants of the generals who ran South Korea when it was a repressive military dictatorship, until the late 1980s. In the wake of the Cheonan sinking, some academics and scientists, both in South Korea and abroad, as well as an army of Netizens in tech-savvy Seoul, began to poke holes in some of the information the government released. Seung-Hun Lee, a physicist at the University of Virginia who ran his own controlled experiments, said materials found on the Cheonan were “not the result of any explosion,” as the government asserted. The government’s conclusions, Lee says, “were absurd.”

Those who helped put together the government’s detailed report are contemptuous of the critics–”amateurs,” is what MIT-trained Rear Admiral Thomas J. Eccles, who led the U.S. investigative team, called them in a briefing for reporters. But in South Korea, the amateurs gained some traction in part because the Cheonan sinking came in the midst of a political season: local elections were due on June 2. On May 24, Lee gave a somber speech in front of a war memorial in Seoul. “Once again,” he said, “North Korea violently shattered our peace. The sinking of the Cheonan constitutes a military provocation.” The effect of these words was to scare the wits out of a fair number of middle-of-the-road South Koreans–particularly younger voters who have done their mandatory two-year military service but now fret they might be redrafted to fight. They–and their parents–voted in droves and handed a surprise victory to the opposition.

Despite that political rebuke, Lee still wanted combined South Korean and U.S. forces to make a significant show of naval strength in the wake of the sinking. Some within the South Korean government, presidential adviser Kim acknowledges, wanted the exercises to occur close to where the Cheonan went down, and some also hoped Washington would contribute an aircraft carrier–the U.S.S. George Washington.

Beijing reacted furiously to both possibilities–in particular the prospect that a nuclear-powered U.S. Navy carrier would be part of an exercise in China’s backyard. China’s reaction quickly got Washington’s attention. Defense Secretary Gates publicly said no decision had been made on the carrier deployment. And though the George Washington did take part in the exercises, which concluded July 29, they were conducted in the Sea of Japan, nowhere near where the Cheonan sank.

A surprise political setback for South Korea’s governing party, a tepid U.N. statement and military exercises that might have been something less than hawks in both Seoul and Washington liked: that, up to August, was the “price” North Korea paid for its alleged act of aggression.

The fallout, however, may not yet be complete. Though the North has just launched an official Twitter feed, trying to fathom how to impact the regime is a mug’s game. But Washington is preparing financial sanctions of the sort that infuriated Pyongyang during the last Administration. They will restrict access to U.S. capital markets by any financial institution that does business with North Korean companies and any organization thought to be controlled by top officials in Pyongyang. Moreover, there will be joint U.S.–South Korea naval exercises at some point near where the Cheonan went down–at a “time of our choosing,” Lee’s adviser Kim says.

And that’s before the report is published. Its details, however they are challenged, will reinforce an uncomfortable question for Beijing and Moscow: Why do these governments carry water for a regime like Kim Jong Il’s? For the U.S. and Lee, the question will be hardly less pointed: If the North, as the report insists, sank the Cheonan, what does that say about the possibility of another war breaking out in Korea? Gates worried aloud recently about the succession that is apparently now taking place in North Korea, from Kim Jong Il to his favorite son Kim Jong Un. “I have a sneaking suspicion,” said Gates, “that Kim Jong Il’s son has to earn his stripes with the North Korean military. And my worry is that that’s behind a provocation like the sinking of the Cheonan … We’re very concerned that this may not be the only provocation from the North Koreans.”

That’s a depressing thought, to be sure. But given the mild consequences dished out to Pyongyang in the wake of the Cheonan affair so far, why should Kim and company stop throwing bricks?