Two years since the passage of the Budget Control Act (BCA) and less than one year into the implementation of the automatic across the board spending cuts deemed “the sequester,” the United States is facing some hard choices on its national defense policy. Critics have long warned that sequestration would “severely damage military readiness” or even “hollow out the force.”¹ The latest study by the Department of Defense (DoD) paints an ominous future for the US military with signifìcant administrative and planned force reductions in the coming decade.³ However, there are those who view these projections as grossly overstating the impact of a much-needed drawdown in US defense spending.⁴ Fact or fìction, the defense spending cut is a reality and how the stakeholders prepare for this changing tide is a choice. The purpose of this brief is to outline the latest projected estimates of DoD spending and explore potential options available for one of the key stakeholders in the region, namely South Korea.

Worst Case Scenario: Strategic Choices and Management Review (SCMR)

Contextual understanding of the current drawdown in US defense spending is useful in providing a perspective on its magnitude and impact. From a historical standpoint, current reduction is the fifth of its kind since the end of World War II and will likely be one of the deepest (if the full impact of BCA is realized) (See Figure 1).

Figure 1. US Federal Defense Outlay, FY 1945 – FY 2014

Source:US Dod

On its face, the BCA imposes a US$487 billion reduction in DoD spending over a ten-year period in addition to the US$500 billion sequester-level caps and US$150 billion reduction in defense spending that the President’s budget imposes over the same period.⁴ Barring any changes to the budget, these measures add up to about US$1 trillion of reduction over the next decade.⁵ Accounting, of course, can be elusive depending on how one goes about counting her beans. There are competing estimates—some more conservative (or liberal) than others. Michael O’Hanlon, for instance, estimates the BCA imposed reduction as US$350 billion rather than US$487 billion—making the total drawdown to be a lot less than what the DoD claims.⁶ Mackenzie Eaglen, on the other hand, claims that the three year spending reduction imposed by the Obama administration pre-sequestration amounts to as much as US$1 trillion already.⁷ Regardless of the numbers, everyone agrees that the cuts are a lot deeper and wider than they would like. While most analysts expect some type of grand bargain or an economic turnaround before these austerity measures are fully implemented, the immediate impact is a US$52 billion cut for Fiscal Year 2014 and similarly sized cuts in subsequent years thereafter.

The numbers are certainly telling, but what does this all mean? That is, exactly how will the reduction be implemented and what impact will it have on the strategic priorities of the United States? The DoD has released the results of its latest study, which addresses these questions in detail. In keeping with the Obama administration’s 2012 Defense Strategic Guidance,⁸ the DoD’s Strategic Choices and Management Review (SCMR) frames the future of US defense strategy as a choice between capacity (i.e. number of Army brigades, Navy ships, Air Force battalions, and Marine battalions), capability (i.e. ability to modernize weapons systems and defense technology), and readiness. The two options outlined by the DoD necessarily pits the fìrst two of these three dimensions against each other whereby an emphasis on capability would mean that the US military will be “smaller and able to go to fewer places and do fewer things, especially if crisis occurred at the same time in different regions of the world;” while emphasis on capacity would make the US military “less effective against more technologically advanced adversaries.”⁹ Although the DoD has not been open about the exact impact that either of these approaches will have for its civilian workforce, the Secretary of Defense has already announced plans to reduce the headquarters budgets by 20 percent as well as implement reforms that will streamline intelligence gathering and report activities. The actual balance between capacity, capability, and readiness still remains to be seen, but the emerging consensus in Washington seems to favor capability over capacity. In a set of parallel independent exercises led by the Center for Strategic and Budgetary Assessments (CSBA) in collaboration with the American Enterprise Institute (AEI), the Center for New American Security (CNAS), and the Center for Strategic and International Studies (CSIS), the preferred approach was to emphasize investment in new technologies and accept deeper cuts to readiness as well as DoD civilian personnel (See Table 1).¹⁰

Source: CSBA

Whither Strategy? Implications of Possible Shifts in US Defense Posture

Rightly or wrongly, the above assessment suggests that the US defense priorities under BCA will be constrained more by budget than strategy. That is, the US rebalance to the Pacific is not likely to look as it was originally conceived if the BCA is allowed to run its course.¹¹ The latest set of independent and internal assessments commissioned by the DoD confìrms that the current US defense posture is adequate in deterring and defending against potential threats in the Asia-Pacifìc, but a shift in the US national security strategy will mean that alternative postures will have to be considered.¹² One recent independent assessment, which entertains a budget driven US defense posture, considers significant draw downs in the region, including reduction of ground forces in Korea by 14,000 to 18,000, along with the withdrawal of 9,000 Marines from Okinawa as well as the elimination of four F-16 squadrons from Misawa and Kunsan.¹³

With negotiations underway to renew the terms of the bilateral Special Measures Agreement (SMA), there is an increasing call in Washington for burden sharing with respect to US military basing in South Korea. As of 2012, the United States spent about US$10 billion on overseas military presence (excluding Afghanistan and military personnel costs) of which 70 percent of this amount was used to support military bases in Germany, Japan, and South Korea. The total amount allocated to non-personnel related cost of basing 28,500 US troops in South Korea was about US$1.1 billion.¹⁴ Historical trends in relative contributions towards US military presence in Korea shows that the US share has exceeded that of South Korea as of 2010 (See Figure 2). However, the cost sharing program in place for consolidating and Repositioning US forces on the Korean Peninsula calls for South Korea shouldering a heavier load than the United States—in the range of about US$4 billion—by the completion of the Yongsan Relocation Plan (YRP) and the Land Partnership Plan (LPP).¹⁵

Figure 2. Funding Support for US Military Presence in South Korea, 2008 – 2012

Source:US Senate Committee on Armed Services

Could reduction in spending lead to a significant drawdown on the Korean Peninsula Not likely. If anything, there are stronger arguments for a build-up.¹⁶ But if cuts have to be made, there are at least three arguments for why these cuts should not come from US Forces Korea (USFK). First of all, the amount of spending set aside for USFK, though not insignificant, is too small to make a serious dent on the DoD’s overall spending. If overseas presence needs to be curtailed in the Pacifìc, cutting forces stationed in other places, such as Japan, would allow for more significant savings. Secondly, the geostrategic importance of USFK has never been greater since the end of the Korean War given the frequency and magnitude of North Korean provocations in recent years.¹⁷ While North Korea fields an aging force with Soviet/Chinese designed legacy hardware, they have a sizable forward deployed presence with an evolving nuclear program as well as an emerging cyber warfare and ballistic missile capabilities (See Table 2 and Figure 3).¹⁸

Figure 3. North Korean Ballistic Missile Capabilities

Source:US DoD

Source: US DoD

History also teaches us that technological superiority is not the only benchmark by which to judge North Korean capabilities. For instance, sinking of the South Korean warship Cheonan in 2010 effectively demonstrates what a poorly equipped North Korean navy can achieve against a technologically superior South Korea.¹⁹ Finally, continuing the current level of troop presence in Korea makes for a good foreign policy from the standpoint of the United States. As shown in the latest set of polls conducted by the Asan Institute for Policy Studies, an overwhelming majority of the South Korean public supports both short (78%) and long-term (68%) presence of USFK on the Korean Peninsula (See Figure 4).

Figure 4. South Korean Public Support for US Forces Korea

Source:2012 Asan Annual Poll

The plurality (48%) also supports continued USFK presence post-reunifìcation. This pattern persists even after accounting for any negative public sentiments against the USFK (See Figure 5).

Figure 5. South Korean Public Opinion on the US Forces Korea

Source:Asan Daily Poll, September 14-16,2013

Among those that perceive the US military as a source of historical and/or social problem (50%), the general view is that the US military presence in South Korea is a necessity (over 80%). An explanation for this dichotomy is the recognition that the USFK security guarantee is the source of stability on the Korean Peninsula (over 60%). In other words, the South Korean public seems to appreciate the instrumental value of US military presence even after accounting for all the baggage (historical and/or social) that might come with this package.

What Next?

Despite all this, it would be a mistake for South Korea to rest solely on what makes good policy sense for the United States. As numerous critics have argued, the current budget challenge facing the United States was guided less by good policy sense and more by political convenience and personal ambition in Washington.²⁰ What guarantees exist to reassure the South Korean government that good policy sense will somehow prevail this time? Even as late as this past August, the Treasury Secretary Jacob Lew alerted the leaders on the Hill about an imminent breach of debt ceiling by mid-October. Time is running out and consensus looks to be in short supply.

On this side of the Pacifìc, difficult circumstances demand difficult choices for Seoul. While South Korea should seek to maintain good relations with all partners, including the United States, it should also plan ahead for contingencies that may arise from deepened budget cuts and even possible reordering of strategic priorities in Washing- ton.

One possible option available to the Park Geun-Hye administration is to consider adjustments to the existing Defense Reform 307 Plan (DR307). Although some assessments suggest that even as large as a 30 percent reduction of USFK would not be signifìcant enough to tip the balance in favor of North Korea,²¹ we know from experience that the existing level of USFK presence does not necessarily deter North Korea from engaging in aggressive behavior or encourage the regime to end its nuclear program. While some independent experts have hailed DR307 as an improvement over its precursor (i.e. Defense Reform Plan 2020), the plan itself was conceived as a response to a series of North Korean provocations in 2010.²² In short, it does not account for a possible reduction in US defense spending or change in its strategic priorities. Time is ripe for the administration to revisit DR307 and consider possible changes to scheduled modernization or possible force size in light of new developments in Washington.

Even before considering adjustments to the DR307, however, the administration can consider raising the bar on South Korea’s own defense spending. The Defense Reform Plan 2020 (DRP2020) called for a spending level set to three percent of GDP. South Korea’s defense budget has never exceeded this level since 1996. Granted, South Korea’s economy has continued to grow and its defense budget has generally increased over time; however, the rate of this growth has not kept up with the requirements of either the DRP2020 or DR307.²³ Under the developing circum-stance in the United States, a more sensible spending level may call for a target in the range of three to four percent of GDP.

In the way of increasing the defense budget, the Park administration may also consider propping up South Korea’s contribution to the SMA. Putting aside all calls for fairness, one key area of renegotiation may be the 2009 SMA provision for cap- ping South Korea’s contribution at four percent per year. Having an upper limit which straitjackets the allies from making strategic defensive adjustments is some- what perplexing to say the least especially when dealing with an unpredictable neighbor like North Korea or a potentially explosive situation in the East China Sea or the East Sea. Aside from the fact that increased contribution signals South Korea’s commitment to the alliance, it also keeps the defensive posturing in the Peninsula from being driven by the budget rather than strategic necessity.²⁴

Another possible option available to the Park administration is to continually build upon South Korea’s past successes in forming and maintaining strong bonds with other states in the region. There is some rationale (both theoretic and empirical) suggesting, for instance, that increased trade between two or more states will lower the likelihood of war between these parties since likelihood of conflict will raise the cost of breaking this relationship.²⁵ The proposed move to complete a free trade agreement with China and/or Japan is a positive step in this regard. South Korea’s renewed interest in the once marginalized Trans-Pacifìc Partnership (TPP) with Japan’s entry into the negotiations could also have some positive security implications as well. South Korea must take care, however, that these trade regimes truly raise the mutual benefits of all participating countries; otherwise, the principled condition by which increased trade can incentivize the parties to seek peace would not hold.

In addition to trade, South Korea also has the option of deepening its political engagement or security cooperation with other countries. The current hub-and- spoke model of security architecture in the Asia-Pacifìc is largely a historical legacy of the postwar settlement that resulted in the failure of the Pacifìc Pact.²⁶ Possible weakening of the hub (i.e. the United States) in the future may mean that this structure is not a sustainable option. Instead of attempting to reinvent the wheel, it may bode well for the current administration to consider increasing its participation to build up existing cooperative arrangements, such as the East Asia Summit (EAS), ASEAN Defense Ministers’ Meeting Plus (ADMM+), or ASEAN Regional Forum (ARF). Of the three, ADMM+ seems most promising.²⁷ While there are many obstacles to the solidification of regional security framework in the Pacifìc, there is no reason to completely discount this possibility in the long run. Needless to say, destabilization on the Korean Peninsula does not only threaten the involved parties and immediate neighbors but also others in the region, whose interests are intricately tied to one another. South Korea can exploit this moment as an opportunity to lead if it wishes to build on its ambitions as a middle power on the global stage.²⁸

Conclusion

There are encouraging signs that the US economic recovery is catching steam, but at the same time, the political jockeying on the Hill suggests that the impasse over the federal budget is not likely to be resolved any time soon. If current conditions persist without any changes down the road, South Korea may be forced into a corner without any choice. The good news is that the Park administration has the opportunity to make the right choice by planning for a potentially difficult future. Winston Churchill once observed that “kites rise highest against the wind – not with it.” Will South Korea rise above this challenge to achieve new heights?