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RUEKJCS/SECDEF WASHINGTON DC//OSD/ISA/EAP PRIORITY
RHMFISS/JOINT STAFF WASHINGTON DC PRIORITY
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C O N F I D E N T I A L STATE 190867 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 11/22/2016 
TAGS: KS PM PREL MARR MASS MCAP
SUBJECT: SMA NEGOTIATIONS ROUND V: TOWARDS THE FINAL ROUND 
 
Classified By: EAP/K ANDREW HYDE FOR REASONS 1.4(b) and (d). 
 
¶1. (C)  SUMMARY.  Round Five of negotiations on funding 
levels for the Special Measures Agreement (SMA) between the 
United States and Republic of Korea (ROK) took place at the 
State Department on November 13, 2006.  Lasting one day, the 
talks concluded with the two parties falling short of a final 
figure for future South Korean contributions to United States 
Forces Korea (USFK),s Non-Personnel Stationing Cost (NPSC). 
Nevertheless, the Koreans appear to be moving away from their 
insistence on further cuts in SMA to, at a minimum, 
straightlining their contribution or even agreeing to a 
moderate increase.  In a series of small group, plenary, and 
one-on-one meetings, the two sides discussed each other,s 
specific methods of cost calculation, as well as larger 
differences in how they interpreted the concept of equitable 
contribution to the alliance.  Both sides also spoke about 
internal political pressures they faced in reaching an 
agreement, and concluded this round of talks by committing to 
what they hoped would be a final session of negotiations 
later this month.  END SUMMARY 
 
------------------------------ 
MORNING THREE-ON-THREE MEETING 
------------------------------ 

¶2. (C)  The negotiations started with the smaller delegations 
from both sides reviewing the results of an October 31 
meeting in Seoul at the Ministry of Foreign Affairs and Trade 
(MOFAT) that was held to review U.S. cost calculations and 
consider some alternative ROK baselines in particular 
categories.  Heads of delegation Ambassador Robert Loftis and 
Ambassador Cho Tae-yong agreed that this meeting had been 
productive and led to a better understanding on both sides 
about the basis and rationale for many of the expense 
calculations. 
 
¶3. (C)  Next, Cho described the time pressures MOFAT faced to 
wrap up the negotiations and deliver a proposal to the 
National Assembly prior to the final approval of the national 
budget by the end of the year.  He remarked that incoming 
Foreign Minister Song Min-soon, who was concerned that 
protracted and acrimonious SMA negotiations would be 
detrimental to the bilateral relationship, asked Cho to 
continue discussions on a longer-term framework while trying 
to craft a more immediate, short-term agreement under the 
existing arrangements. 
 
¶4. (C)  Ambassador Cho expressed interest in the impact of 
the reduced ROK SMA contribution for 2005-06 on USFK 
operations, commenting that the major reductions had come in 
the South Korean contribution to labor costs.  He recognized 
that more should be done in this area and was willing to 
consider an agreement that would lift the ROK labor share 
back up to its previous level of 71%.  Cho noted, however, 
that this increase would only offset a perceived upcoming 
decrease in construction costs.  Not decreasing construction 
costs would be difficult*especially given how much the ROK 
is paying for the relocation of the Yongsan garrison and the 
ongoing drawdown in U.S. forces*but paying for an increase 
would be even harder, he added.  Thus, the overall Korean 
offer would change little from the current level of 680 
billion Won.  Cho stated that this bottom-up approach was the 
only way the government could defend a particular request 
before the National Assembly. 
 
¶5. (C)  Ambassador Loftis remarked that the U.S. side was 
confused by the ROK reference to specific sub-accounts.  He 
explained that we expected to have the freedom to move money 
around among the various accounts and we will be considering 
the overall ROK offer instead of tying funds to particular 
functions.  Addressing the U.S. perspective on those specific 
accounts, Loftis pointed out that the lower amounts in the 
current SMA had forced USFK to allow labor attrition to run 
its course and there no longer was any further cushion on 
labor levels.  He emphasized that increased ROK support would 
be essential to rectify this situation. 
 
¶6. (C)  Ambassador Cho said there was some inconsistency as 
to how Yongsan relocation costs were applied to the NPSC 
calculation; some U.S. costs were included while ROKG 
expenses were left out.  The U.S. side disputed this 
assertion, pointing out how some ROK expenses such as 
vicinity improvements were included and that many U.S. costs 
had been left out.  Returning to construction expenses, Cho 
mentioned that he could consider maintaining them at the 
current level, implying that along with the increase in labor 
support, the ROK offer could rise to 720 billion Won.  Loftis 
urged greater ROK flexibility, noting Congressional 
expectations for a genuine increase in the ROK share.  A new 
Congress in January, he said, would undoubtedly have some 
tough questions as to why the U.S. was spending over $4 
billion annually on Korea-related expenses and would want to 
closely examine trends in the Korean contribution. 
Accordingly, we would expect at least a 780 billion Won 
contribution from the ROK.  Cho replied that to even justify 
considering that number he would need some hard facts as to 
how it was developed and what it would pay for. 
 
------------------------- 
AFTERNOON PLENARY SESSION 
------------------------- 
 
¶7. (C)  After the 3-on-3 meeting, Ambassadors Loftis and Cho 
convened the plenary session and conveyed that although they 
made some progress, a further round of talks in Seoul would 
be necessary to conclude the negotiations.  Ambassador Cho 
stated that he would aim to prepare something "very close to 
a final proposal" at this next round of talks and hoped that 
this proposal would result in a conclusion that was 
reasonable to both sides. 
 
¶8. (C)  For most of the remainder of the plenary session, the 
ROK side explained their calculations of direct and indirect 
contributions to NPSC.  Lee Jeong-kyu, Director of MOFAT,s 
North American Division III, started by pointing out the 
categories with the largest differences in U.S. and ROK 
figures:  foregone rent, utilities, rent, and vicinity 
improvements.  In summary, Lee said that according to South 
Korean calculations, the ROK had paid 42.9% of total costs in 
2005, which he claimed was 3% to 4% different from the U.S. 
figure. 
 
¶9. (C)  Ambassador Loftis responded by asking the Koreans if 
the ROKG was moving towards using percentages as the basis 
for SMA calculations and discussion.  Lee replied in the 
negative, and continued to explain how the ROKG had surveyed 
forty-five institutions (in the central and local governments 
as well as in the private sector) during a four to five month 
period to come up with their financial figures. 
 
¶10. (C)  Ambassador Loftis next asked what kind of time 
constraints the Korean delegation faced in submitting a 
proposal to their National Assembly.  Ambassador Cho replied 
that the proposal for 2006 had to be submitted in early 
December 2005, but pointed out that even before this step, 
the proposal had to undergo an internal clearance procedure 
at MOFAT which could take two to three weeks.  Kim Jung-han, 
First Secretary in MOFAT,s Bilateral Treaties Division, 
interjected with the fact that last year, the entire 
process*which included clearance procedures at both his 
ministry and at the Ministry of Legislation before being 
submitted to the National Assembly*took nearly two months. 
Ambassador Loftis emphasized that  getting it right, was 
more important than completing an agreement quickly; in 
response, Ambassador Cho reminded the room that the National 
Assembly could reject a late submission for inclusion in the 
following year,s budget. 
 
¶11. (C)  In closing, Ambassador Cho pledged to submit a 
proposed amount of South Korea,s contribution through the 
ROKG senior leadership in the next week, hopefully in time 
for a final round of negotiations in Seoul in late November. 
He agreed to phone Ambassador Loftis with that figure by 
November 24.  The plenary session ended with both heads of 
delegation reiterating the importance of the bilateral 
alliance and expressing satisfaction with their joint efforts 
to reach a solution. 
 
---------------------------- 
AFTERNOON ONE-ON-ONE MEETING 
---------------------------- 
 
¶12. (C)  At the end of the day, Ambassador Loftis invited 
Ambassador Cho to a one-on-one meeting and presented the 
USG,s rock bottom line of 752 billion Won for 2007 and 752 
billion Won plus 3% for 2008.  Loftis stated that although we 
preferred a third year at another 3%, we would accept a two 
year agreement on these terms.  Ambassador Loftis explained 
that he did not want Cho to expend a lot of political capital 
to get the Korean proposal up to 720 billion Won, only to 
have us reject it as inadequate.  He further stated that 
these were real bottom line figures, given to Cho in the 
interest of meeting his requirement to conclude an agreement 
by the end of the year.  Loftis emphasized that he was 
providing Cho with our real redlines:  if the Koreans met 
those figures we would have an agreement.  If the Koreans 
returned with an offer below those figures, he could not 
predict how long it would take to get a U.S. response. 
Moreover, settling on anything less than 752 billion Won 
would require the U.S. to deliberate on what adjustments to 
our force structure would have to be made to meet the 
shortfall in Korean contributions. 
 
¶13. (C)  Ambassador Cho responded that these frank exchanges 
were very helpful for him to gain interagency support in 
Seoul.  His initial instructions were to make a similar cut 
in the SMA as in the previous agreement; and if that was not 
possible, to try to negotiate a straight line rollover.  Cho 
conceded that U.S. arguments, as well as the working group 
meetings on adjustments, made a powerful case to justify an 
increase in ROK contributions.  Upon his return to Korea, Cho 
stated that he would argue that the ROK should look at 
getting back to the 2004 figure of 740 billion Won and 
perhaps higher, but made it clear that it would be very 
difficult for him to convince the others.  Cho also pressed 
for a three-year agreement, and stressed the need for a fresh 
look at the whole SMA process to avoid lengthy and 
contentious negotiations. 
 
------------ 
PARTICIPANTS 
------------ 
 
¶14. (SBU)  U.S. Delegation: 
Ambassador Robert Loftis, Senior Advisor, Bureau of 
Political-Military Affairs (PM) 
Major General Duane Thiessen, Assistant Chief of Staff J5, 
USFK 
Mr. Joseph Yun, Political Minister Counselor, U.S. Embassy 
Seoul, DOS 
Lieutenant Colonel Phillip Janzen, Military Advisor, PM, DOS 
Commander Thomas Herold, Judge Advocate General,s Corps 
Colonel Christopher Dinenna, Chief of J5 Strategy and Policy 
Division, USFK 
Mr. Mark R. Shoemaker, SOFA Secretariat, USFK 
Lieutenant Colonel William Conwell, Chief of J5 Policy 
Analysis Branch, USFK 
Ms. Mary Beth Morgan, Country Director for Korea, ISA/APA, OSD 
Mr. Andrew Hyde, ROK Unit Chief, Office of Korean Affairs, DOS 
Mr. Andrew Ou, ROK Desk Officer, Office of Korean Affairs, DOS 
 
¶15. (SBU)  ROK Delegation: 
Ambassador Cho Tae-yong, Director General, North American 
Affairs Bureau, MOFAT 
Mr. Lee Jeong-kyu, Director, North American Division III, 
NAAB, MOFAT 
Colonel Chun In-bum, Director, U.S. Policy Division, Ministry 
of National Defense 
Mr. Chun Young-hee, First Secretary, NAD III, NAAB, MOFAT 
Mr. Kim Jung-han, First Secretary, Bilateral Treaties 
Division, MMOFAT 
Lieutenant Colonel Seo Young-kwang, Advisor, NAD III, NAAB, 
MOFAT 
Ms. Kim Sin-sook, Deputy Director, U.S. Policy Division, MND 
Mr. Jeong Yeon-doo, First Secretary, ROK Embassy in U.S.A. 
 
¶16. (U)  Ambassador Loftis has cleared this cable. 
RICE