Taiwan The Tail That Wags DogsMichael McDevittAsia Po.docx

Taiwan: The Tail That Wags Dogs
Michael McDevitt
Asia Policy, Number 1, January 2006, pp. 69-93 (Article)
Published by National Bureau of Asian Research
DOI: 10.1353/asp.2006.0011
For additional information about this article
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asia p olicy, number 1 (january 2006 ), 69–93
Michael McDevitt (Rear Admiral, retired) is Vice President and
Director
of the Center for Naval Analyses at the CNA Corporation.
These views are his
own and do not represent the views of the CNA Corporation. He
can be reached
at <[email protected]>.
keywords: taiwan; china; united states; japan; foreign relations
Taiwan: The Tail That Wags Dogs

Michael McDevitt
[ 70 ]
execu tive summary
asia p olicy
This essay explores how Taiwan has been able to seize the
political initiative
from China, Japan, and the United States.
main argument
Taiwan has attained this leverage due to the interrelationship of
four factors:
• Strategic considerations stemming from Taiwan’s geographic
position lead
Tokyo and Washington to prefer the status quo, while leading
China to
strive for reunification. China’s increasing military power,
however, may
suggest a Chinese intention to change the status quo.
• Shared democratic values and the fact that the “democracy
issue” has great-
ly prolonged the timetable for reunification give Taipei political
influence
in both Washington and Tokyo.
• China’s constant threats of force actually empower Taipei in
its relationship
with Washington, and cause the United States to plan for the

worst.
• Taiwan is a litmus test of U.S. credibility as an ally, a
condition that in turn
creates a perception on the island that U.S. military backing is
uncondi-
tional.
policy implications
• Taipei’s high-risk diplomatic approach carries with it the very
real possibil-
ity of miscalculation, which could easily lead to great power
conflict.
• The United States would benefit from exploring with Beijing
ways in which
to demilitarize the issue of Taiwan independence so that the
threat of great
power conflict over Taiwan is greatly moderated.
• Tensions may eventually lessen substantially if Beijing can be
encouraged to
substitute political deterrence for military deterrence.
• In order to ensure that the U.S. position in the region would
survive a
Taipei-provoked conflict should the United States choose not to
become
directly involved, Washington can undertake extensive talks
with Japan de-
signed to ensure that Japan does not lose confidence in
Washington.
organization of the essay
The first four sections of the essay respectively explore the four

factors of the
complex U.S.-Taiwan-Japan-China relationship outlined above:
Geostrategic Issues and Considerations . . . . . . . . . . . . . . . . . .
. . . . . . . . . . 73
Democracy in Taiwan: The Influence of Democratic Values . . .
. . . . . . . . 77
China’s Policy of Threatening the Use of Force . . . . . . . . . . . .
. . . . . . . . . . 83
The Symbolic Importance of Taiwan to U.S. Credibility . . . . . .
. . . . . . . . . 87
A conclusion (p. 91) summarizes the report and offers policy
implications.
[ 7 1 ]
mcdevit t • taiwan: the tail that wags d o gs
T he year 2005 has turned out to be a more difficult period for
Sino-U.S. relations than many observers anticipated. A series of
trade issues, in
particular the growing trade deficit and concerns over the lack
of Chinese
enforcement of WTO intellectual property obligations, have
combined with
both concerns regarding China’s currency being overvalued and
growing geo-
strategic anxiety over China’s rise and its military
modernization to shift the
policy spotlight away from Taiwan as a potential
“troublemaker” and place it
squarely on Beijing.

This is quite a change from the winter of 2004–05 when
Beijing’s policy
focus changed from considerations related to when reunification
with Taiwan
ought to take place, to a policy of halting moves toward
independence by the
government in Taipei. Much to the gratification of the White
House, Beijing
has gone along with the U.S. policy of no unilateral changes to
the cross-Strait
status quo. Meanwhile, Taiwan’s president Chen Shui-bian has
become more
restrained in his ambitions to redefine Taiwan’s constitutional
structure in a
way that presages de jure independence for Taiwan. As a result,
an equilib-
rium exists (albeit an uneasy one), and the atmosphere of near
crisis prevalent
not quite a year ago has abated.
Looking back, one of the fascinating aspects of the existing
relationship
between Taiwan, the People’s Republic of China (PRC), Japan,
and the United
States is the degree to which the Chen Shui-bian administration
in Taipei
has managed to seize the political initiative and put the three
great powers of
Northeast Asia in a reactive mode. Unfortunately, the way by
which a small
nation of only 23 million people has been able to accomplish
this feat of dip-
lomatic jujitsu is by stoking the coals of Taiwanese nationalism
on the island
to a point just short of crisis with the PRC. Washington and
Tokyo have not

been amused by the willingness of Taipei to play diplomatic
“chicken” with
Beijing because the stakes of a miscalculation by either side are
so high for all
concerned. The purpose of this paper is to explore this situation
and consider
alternatives that could reduce the possibility of Taiwanese
“provocations” elic-
iting great power responses.
The main argument is that Taiwan’s leverage is derived from
four inter-
related factors, which are examined respectively in the first four
sections of
the paper:
Strategic considerations stemming from Taiwan’s geographic
position
in Northeast Asia lead Tokyo and Washington to prefer the
status quo,
while leading China to strive for reunification. The increasing
power
of the People’s Liberation Army (PLA), however, is making
both Japan
•
[ 72 ]
asia p olicy
and the United States nervous regarding China’s ability to
coerce a
change in the status quo in the near future.

Shared democratic values and the fact that the “democracy
issue” has
greatly prolonged the timetable for reunification give Taipei
political
influence in both Washington and Tokyo.
China’s constant threats of force actually empower Taipei in its
rela-
tionship with Washington, and cause the United States to plan
for the
worst.
Taiwan is a litmus test of U.S. credibility as an ally, a condition
that
in turn creates a perception on the island that U.S. military
backing
can be relied upon unconditionally. The United States should
work
to ensure that the U.S. position in the region, and the value of
the
United States to Asian nations as the balancer against China,
would
survive a Taipei-provoked conflict should the United States
choose
not to become directly involved. Washington can strive to
achieve this
by undertaking extensive consultations with Japan designed to
ensure
that Tokyo does not lose confidence in Washington and that the
U.S.-
Japan alliance remains strong.
While Taipei has been effective in drawing the United States
into a de
facto military alliance, and has caused Beijing to shift its

Taiwan policy from
reunification to halting independence (which is another way of
supporting
the status quo), Taipei’s high-risk strategy carries with it the
very real possibil-
ity of miscalculation.
Because miscalculation could lead to great power conflict, it is
important
to try to demilitarize the Taiwan issue. A conclusion thus offers
a summary of
recommendations necessary to achieve such a demilitarization.
As one sce-
nario, tensions may eventually lessen substantially if Beijing
begins to substi-
tute political deterrence for military deterrence. In addition, the
United States
and Japan should seek ways to mitigate the possible impact on
U.S. credibility
if Washington decided not to intervene militarily should Taiwan
recklessly
and foolishly precipitate a crisis with China.
•
•
•
[ 73 ]
geostrategic issues and considerations

Of the four factors, geography is the only element of strategy
that does
not change. Geography, to a very large degree, determines
strategic interests
and dictates the strategic choices in most national policies.
Taiwan’s Strategic Impor tance to the PRC
When East Asia is considered in its totality—i.e., both
continental and
maritime domains, it is clear that China dominates the
continent. This has
been the case ever since Mao Zedong drove the U.S.-backed
Nationalist Chi-
nese allies off the continent in 1949 and U.S. forces were fought
to a standstill
on the Korean peninsula from 1950 to 1953. During the United
States’ last
land war in Asia, the Vietnam War, the Johnson administration
refused to
countenance a number of seemingly sensible military actions
against North
Vietnam lest such moves draw the PRC directly into the war.
Moreover, Viet-
namese and Russian military capabilities have declined
precipitously in the
past two decades, and while the Indian army has made great
strides since
the 1962 Sino-Indian border skirmish, extreme Himalayan
terrain ensures a
secure buffer against a major invasion in either direction. On
the continent,
China is militarily supreme.
A very different situation exists, however, on the PRC’s

maritime frontier.
Here, the United States and its island and archipelagic allies—
including Japan
and Taiwan—predominate. This has been an area of strategic
vulnerability
ever since China first encountered the West (including
Westernized Japan)
in the nineteenth century, and remains so today. Since defeating
its only rival
for primacy, Japan, in World War II, the United States has been
the dominant
military power in littoral Asia.
From Beijing’s vantage point, the combination of the Ryukyu
chain and
Taiwan effectively act as a picket fence around the East China
Sea, potentially
constraining either access to the eastern seaboard of central and
northern
China (including Shanghai) or egress for PRC maritime traffic
to the Pacific
Ocean. James Lilley, former U.S. ambassador to China,
accurately noted that
Taiwan “is the cork in China’s bottle.” Taiwan falling into the
PRC’s hands
would “end what China feels to be a blockade on its ability to
control its sur-
rounding seas.”�
� Ambassador James Lilley, quoted in Nancy Bernkopf Tucker,
“If Taiwan Chooses Unification,
Should the United States Care?” Washington Quarterly 25, no. 3
(Summer 2002), 22.

[ 74 ]
asia p olicy
Taiwan is Strategically Impor tant to Tokyo
Tokyo has long been aware that the location of Taiwan has
made the is-
land strategically important to Japan. It was the Imperial
Japanese Navy that
persuaded the Japanese government to insist on the annexation
of Taiwan in
1895; Japanese naval strategists believed that in order to
become a “Western”
industrialized society, Meiji Japan would require maritime trade
to bring raw
materials to Japan and to transport Japanese goods to countries
around the
world. As early as 1879, when Tokyo asserted sovereignty over
the Ryukyu
kingdom by unilaterally annexing this island chain,� Japanese
strategists rec-
ognized the importance of having control over the islands
spread along the
major sea lanes between Japan and Southeast Asia.�
One hundred and ten years has not changed this geostrategic
reality. As
a major trading and energy-importing nation, Tokyo still
realizes that Japan’s
economic viability is dependent on the maritime trade routes
from the Mid-
dle East and Southeast Asia that pass through waters proximate
to Taiwan.
Because a hostile power in possession of Taiwan could easily
disrupt maritime

traffic bound for Japan, Taiwan is strategically significant to
Japan.
Japan’s vulnerability to economic isolation is not simply a
conceptual
problem for Tokyo. The U.S. submarine campaign in World War
II, which
succeeded in economically isolating Japan, is a historical
reminder of the im-
portance of preventing a disruption to maritime commerce.
Hisahiko Oka-
zaki has been explicit in spelling out the strategic implications
of the PRC
annexation of Taiwan: such a development would not only
compromise the
sea lanes upon which Japan’s Middle Eastern oil imports travel
(e.g., the Bashi
Channel east of Taiwan), but also give China improved leverage
in its rela-
tionship with Southeast Asia, which could have an indirect
impact on Japan’s
significant economic interests in that region.�
� The island chain includes Okinawa and stretches southward
all the way to Taiwan.
� The Ryukyu kingdom had been a Chinese tributary since
1372 and concurrently a district of the
Southern Japanese Satsuma domain since 1609. When
negotiations between Tokyo and Peking to
resolve the status proved fruitless, Japan unilaterally annexed
them. See S.C.M. Paine, The Sino-
Japanese War of �89�–�895: Perceptions, Power and Primacy
(New York: Cambridge University
Press, 2003), 90–91.

� Hisahiko Okazaki, “The Strategic Value of Taiwan” (paper
prepared for U.S.-Japan-Taiwan Trilat-
eral Strategic Dialogue, Tokyo, March 2, 2003) •
http://www.glocomnet.or.jp/okazaki-inst. While
Okazaki’s interpretation may be a bit overdrawn, many Japanese
do share his view.
[ 75 ]
Taiwan’s Value for U.S. Hedging Strateg y
Official U.S. policy has no explicit geostrategic caveats
regarding reuni-
fication so long as any such unification is peacefully achieved
with the con-
sent of the people of Taiwan. There is no question, however,
that as long as
the long-term impact on regional stability occasioned by
China’s rise remains
unclear, perpetuation of the status quo makes geostrategic
sense. The history
of World War II is a reminder to the United States that
Taiwan’s geographic
position in East Asia is important. Japanese air power launched
from bases
in Taiwan destroyed General Douglas MacArthur’s air force at
Luzon in De-
cember 1941, and greatly facilitated the Japanese conquest of
the Philippines.5
Thus, PLA naval and air bases on the east coast of Taiwan
would permit China
to project power more easily throughout littoral East Asia, and

provide the
PRC with the ability to interrupt seaborne commerce destined
for Northeast
Asia. With Taiwan and its Pratas island group in PRC hands—
along with the
Paracels seized from Vietnam in 1974 and many of the Spratly
islands, China
would have territorial sea and economic exclusion zone claims
to large chunks
of the South China Sea.
Impact of China’s Rise on Cross-Strait Stability
The difficult reality for Taiwan is that it is always going to be
only one
hundred miles from China, is always going to be one-fiftieth the
size of China
in terms of population, and is always going to be hugely
disadvantaged in
terms of the size of military establishments, long-term military
potential, and
the resources available for defense. Finally, as an island nation
with few natu-
ral resources, Taiwan is always going to be dependent on
maritime imports.
Taiwan has not been swallowed up over the past half-century
largely be-
cause the Taiwan Strait presents a natural barrier to the power
of the PLA, and
because other great naval powers have helped to keep Chinese
air and naval
power on the west side of the strait. The Japanese were so much
more militar-
ily advanced than China in the 1894–95 Sino-Japanese War that
they could

promise to march on Beijing if their demands—including the
annexation of
Taiwan—were not met. Fifty-five years later it was the United
States that was
strong enough to underwrite Taiwan’s security and permit the
Republic of
China (ROC) to survive.
5 H.P. Willmott, Empires in the Balance: Japanese and Allied
Pacific Strategies to April �9�� (Annapo-
lis, MD: U.S. Naval Institute Press, 1982), 146–48. Willmott
provides an excellent assessment of the
impact of Japanese airpower flying from Formosa at the start of
World War II.
[ 76 ]
asia p olicy
During much of the Cold War, when China’s military potential
was ei-
ther focused on the threat from the Soviet Union or was
consumed by do-
mestic unrest (such as the “Cultural Revolution”) the defense
establishment
remained wedded to a doctrine of “People’s War.” The United
States was thus
able to fulfill its defense obligation with the U.S. forces then
stationed in East
Asia, which were principally responsible for the defense of
Japan or Korea.
Taiwan did not require a large separate increment of
“dedicated” U.S. military
power. In this sense the defense of Taiwan was an “economy of

force” com-
mitment—a situation that soon will no longer be true due to
steady improve-
ments in the PLA. Soon, the cross-Strait balance will no longer
grossly favor
the combined capabilities of the United States and Taiwan.
The PLA’s single-minded focus on Taiwan in recent years has,
however,
given the PLA the military capabilities necessary to reach
Taiwan in a way
that was not possible in earlier decades. The Chinese military is
beginning
to match Taiwan’s qualitatively superior capabilities with
equally, or nearly as
advanced, Russian systems. As the December 2004 PRC defense
white paper
makes clear, the PLA is investing more in naval and air forces
for the express
purpose of establishing air and sea control over the seaward
approaches to the
PRC.� If not balanced by increased U.S and Taiwanese
capabilities, the PLA’s
modernization will inevitably change the defense equation for
both Taiwan
and the United States.
Summar y
In sum, Taiwan’s geographic position creates geostrategic
interests on the
part of the United States and Japan that are different from those
of the main-
land. Washington and Tokyo’s interests favor perpetuation of
the status quo so
long as the nature of a “risen China” remains an open question

and the PRC’s
military modernization has the potential to destabilize the
region. Neither the
United States nor Japan is likely to press Taiwan on the issue of
reunification.
Tokyo and Washington will be content so long as Taipei does
not go beyond
the status quo and seek permanent separation of Taiwan and the
mainland.
� State Council Information Office, China’s National Defense
in �00�, Beijing, December 2006, 6.
[ 7 7 ]
demo cracy in taiwan:
the influence of demo cratic values
In 1986 President Chiang Ching-kuo decided to gradually
rollback
Kuomintang (KMT) authoritarian rule in Taiwan. Once in place,
these po-
litical reforms resulted in a fairly rapid dismantlement of the
institutions of
repression. By 1996 Taiwan could boast of having a very lively
democratic
system. The 2000 elections actually resulted in a change in
ruling party, and
Chen Shui-bian—who had been jailed for democratic activism
decades ear-
lier—became president.

Democratic Values and the United States
This democratization process has had a major impact on the
relationship
with the United States by broadening Taiwan’s political support
to both major
U.S. political parties. As Richard Bush writes: “Previously,
American liberals
had criticized the KMT for its repressive rule. Now the island
was a poster
child for American values, made all the more prominent by the
fact that po-
litical repression was still the order of the day across the
Taiwan Strait.”�
Democracy and reunification • The advent of democracy in
Taiwan has
also made it much more politically difficult for Washington to
push Taipei
into a unification dialogue in order to bring an end to
Washington’s 50-year
security obligation. One of the most significant consequences of
democracy
took place in 1991, when Taiwan President Lee Teng-hui
approved a set of
Guidelines for National Reunification. In retrospect, this change
put the is-
land on a very different political trajectory in that Taipei
dropped the pretense
that the ROC represented the only legitimate government of
China. As long
as the PRC and the ROC each claimed to represent the true
Chinese state and
each aimed to reunify the country under its own political model,
there was no
dispute regarding concepts of “one China.” Each side asserted it

would end the
Chinese civil war by “recovering” the territory occupied by the
other.
Instead, Taipei’s new guidelines accepted the PRC as the
legitimate gov-
ernment of the part of China that Beijing controlled. This move
effectively
nullified the underlying premise of the 1972 Shanghai
Communiqué that
“Chinese on either side of the Taiwan Strait maintain there is
but one China
and that it is a part of China.” As Harry Harding has stated,
“Taiwan basically
abandoned the vision of one country, one legitimate government
that had
� Richard C. Bush, “The United States and Taiwan” (paper
presented at the International Conference
on the United Nations and Taiwan, New Century Institute,
September 2003), 6.
[ 78 ]
asia p olicy
been pursued by Chiang Kai-shek, Chiang Ching-kuo, and for
that matter
Mao Zedong and Deng Xiaoping.”8 The 1991 Guidelines for
National Reuni-
fication softened the political blow of backing away from the
old formulation
of “one China” by stating that the ROC still envisioned a “one
country, one

system” future but only when the PRC had become “democratic,
free, and
equitably prosperous”—just like Taiwan.
The notion of reunification only when the mainland becomes
democratic
is implicit—but not explicit—U.S. policy as well. The U.S.
policy of support-
ing no unilateral changes to the status quo was articulated in the
oval office
by President Bush in the presence of PRC Premier Wen Jiabao.
This policy
in effect means that the people of Taiwan have a veto over any
reunification
scheme with which they do not agree. Polls in Taiwan have
repeatedly indi-
cated that the citizens of Taiwan are not interested in reuniting
with a main-
land that is controlled by the Chinese Communist Party (CCP).
Ironically,
while applauding this presidential statement as a warning to
Chen Shui-bian,
Beijing was also endorsing a policy that does not promise any
near-term reso-
lution of this issue. That Beijing would be pleased over
preservation of the
status quo is testimony to how much Chen Shui-bian has
managed to change
the terms of the cross-Strait debate.
While the status quo may satisfy Washington over the long term
and Bei-
jing in the near term, the leadership in Taiwan remains
distinctly unsatisfied.
The status quo does not meet the growing desire of Taiwan’s
polity for greater

international recognition of its democratic success. President
Chen Shui-bian
captured this desire in a 2004 speech on Taiwan’s National Day:
“There is no
reason that the 23 million people of Taiwan should continue to
be ‘politically
isolated’ and remain as international nomads without due
acknowledgement.
Taiwan must stand tall on the international stage, with parity
and dignity.”9
The Bush administration • In the early years of the first term
of George
W. Bush, the administration made conscious efforts to show
U.S. sympathy
regarding Taiwan’s anomalous situation—the island is a full-
blown democ-
racy recognized by only a handful of insignificant countries,
and excluded
from virtually all international institutions that require
“statehood” as a cri-
terion for membership. By the middle of 2003 the Bush
administration was
characterized as “… pursuing a policy toward Taiwan that was
more heavily
8 Harry Harding, “‘One China’ or ‘One Option’: The
Contending Formulas for Relations across
the Taiwan Strait,” (lecture, Asian Affairs Committee of the
Association of the Bar of New York,
November 1, 2000), reprinted in the National Committee for
U.S.-China Relations Newsletter, March
2001.
9 For a printed version of Chen’s speech, see “President Chen’s
National Day Address,” Taiwan Up-

date 5, no. 11 (October 29, 2004), 5 •
http://www.tecro.org/taipei_update/pdf-issues/102904.pdf.
[ 79 ]
weighted toward Taiwan than at any time since U.S.
normalization of relations
with the PRC.”�0
What this meant in practice was a decision to allow Chen Shui-
bian to
make an extended transit stop in the United States, including
visits with two
dozen members of Congress and attending public functions and
meetings
with local elected officials. Taiwan’s Vice President Annette
Lu, an outspoken
independence advocate, was also permitted the same transit
privileges. In a
remarkable departure from previous practice, Taiwan’s defense
minister was
authorized to visit the United States to attend a conference in
Florida orga-
nized explicitly so he and his sizable entourage would be able to
meet with an
array of various defense contractors as well as with the Deputy
Secretary of
Defense Paul Wolfowitz and other officials from the
Department of Defense
(DoD). The administration also approved a Taiwan arms sales
package that
included submarines, something no previous administration was

willing to
authorize.��
Although having made an unprecedented good faith effort to
both posi-
tively acknowledge Taiwan’s democracy and give the island
more “interna-
tional space,” the Bush administration’s enthusiasm for the
Chen administra-
tion began to wane in late summer of 2003. President Chen
announced that
he was planning to resolve some of the island’s most difficult
policy debates
through the process of national referenda. This immediately
provoked con-
cern in Beijing because the CCP leadership is convinced that
the referenda
process is a slippery slope that will inevitably lead to a national
referendum on
independence—something Beijing absolutely opposes, seeing it
as a concrete
step toward de jure independence. A referendum could
legitimize a declara-
tion of independence as an act that reflects the will of the
people of Taiwan.��
Because Beijing was concerned, Washington—deeply embroiled
as it
was in Afghanistan and Iraq—was also concerned. The Bush
administration
feared that Chen Shui-bian had embarked on a course that would
eventu-
ally undermine stability across the Taiwan Strait. The last thing
Washington
wanted was another crisis on its hands. Washington was
especially concerned

because Chen was persisting in this course despite signals sent
from the high-
�0 “Taiwan: Recent Developments and U.S. Policy Choices,”
CRS Issue Brief for Congress (updated July
16, 2003), CRS–12.
�� Worth remembering is that, due to successful PRC
economic and diplomatic pressure, no country
except the United States is willing to sell arms to Taiwan.
�� The author most recently discussed the slippery slope
metaphor with a delegation from a variety
of Chinese think tanks in May 2004 during an extended meeting
focused on the Taiwan issue. This
has long been a Chinese concern and has been reinforced of late
by the series of incremental steps
taken by Lee Teng-hui and Chen Shui-bian toward de jure
independence.
[ 80 ]
asia p olicy
est levels in the U.S. government that Taiwan should not go
forward with a
plan that could lead to a crisis. Chen’s attitude regarding
Washington’s warn-
ings was that he would not bow to pressure from Washington:
“Taiwan is
not a province of one country nor is it a state of another … I
don’t think a
democratic country can oppose our democratic ideals.”�� From
Washington’s

perspective, Chen was ignoring U.S. interests, a development
which was espe-
cially irksome given how far the Bush administration had gone
to expand the
range of U.S.-Taiwan relations.
Chen’s statement captures perfectly how the issue of shared
democratic
values empowers Taiwan when it deals with Washington. By
seizing the moral
high ground, Chen made it difficult for Washington to be too
publicly criti-
cal of the direction in which Chen appeared to be heading,
namely making
changes to Taiwan’s constitution. Private and diplomatic
interventions fell
on deaf ears. By brushing aside Washington’s worries over
provoking a cri-
sis with Beijing, Chen Shui-bian was apparently willing to
ignore President
Bush’s concerns over Taiwan’s actions provoking a conflict
with …
Sanctioning North Korea: The Political Economy of
Denuclearization and Proliferation
Author(s): Stephan Haggard and Marcus Noland
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AS.2010.50.3.539.
539
STEPHAN HAGGARD AND MARCUS NOLAND
Sanctioning North Korea
The Political Economy of Denuclearization and Proliferation
ABSTRACT
Following North Korea’s second nuclear test, the U.N. Security
Council tightened
sanctions. However, North Korea has tilted its relations toward
partners uninterested
in such measures. Since 2005, it has retreated from economic
reform, most obviously
in the 2009 confiscatory currency reform. These developments
raise doubts about
North Korea’s interest in engagement.
KEYWORDS: North Korea, economic sanctions, nuclear
weapons, missiles, United
Nations Security Council
Passage of the United Nations Security Council Resolution
(UNSCR) 1874 on June 12, 2009, marks a new phase in the
development of the
North Korean nuclear crisis. Until that time, the dominant view
was that North
Korea was probably still engaged in a protracted negotiation.
The missile and

nuclear provocations of 2006 were followed relatively quickly
by the signing of
important roadmap agreements in February and October 2007.
Similarly, the
haggling in 2008 over the parties’ respective commitments
under these two agree-
ments and the conflict over a verification protocol could be
interpreted as tactical
moves. Although the last round of the Six Party Talks in
December of 2008 ended
in a stalemate, the Obama administration was publicly
committed to a resump-
tion of the negotiations and a broader strategy of engagement.
Since the missile and nuclear tests of early 2009, however, the
mood with
respect to North Korea’s intentions has turned dourer. North
Korea’s actions
and statements appear to support the hawks’ view that
Pyongyang is now
Stephan Haggard is Lawrence and Sally Krause Professor,
Graduate School of International
Relations and Pacific Studies, University of California, San
Diego. Marcus Noland is Deputy
Director and Senior Fellow at the Peterson Institute for
International Economics and Senior Fellow
at the East-West Center. The authors would like to thank the
Smith Richardson, MacArthur, and
Korea Foundations for financial support. Jennifer Lee provided
considerable research assistance.
AS5003_05_Haggard & Noland.indd 539 6/16/10 4:03 PM
2013 16:11:11 PM

540 • ASiAN SURvEY 50:3
committed to developing and keeping a credible nuclear
deterrent. In an
early test of the Obama administration, North Korea stated that
it would
only relinquish nuclear weapons after relations with the U.S.
had been nor-
malized. Following the April 5 test of a multistage rocket, the
U.N. Security
Council (UNSC) issued a presidential statement that moved to
implement
sanctions under the earlier Security Council Resolution 1718,
passed in Oc-
tober 2006 following the country’s first nuclear test. North
Korea responded
by withdrawing from the Six Party Talks, resuming the
reprocessing of spent
fuel rods, and undertaking a second nuclear test on May 25,
2009.
Following the passage of UNSCR 1874 in June, North Korea
once again
escalated by claiming that it would weaponize all recently
reprocessed pluto-
nium, commence a uranium enrichment program, and provide a
“decisive
military response” to any “blockade” against the country.
Former President
Bill Clinton’s visit to Pyongyang in August to secure the release
of two de-

tained journalists provided an opening for the resumption of
dialogue. But
even optimists foresee protracted negotiations in which the
regime will con-
tinue to wield its nuclear and missile arsenals as bargaining
chips.
There are ample reasons to believe that North Korea’s behavior
is driven
not by the external environment but by complex domestic
developments
that include Kim Jong-il’s health, factional struggles over the
succession, and
longer-run economic changes that have weakened the
government’s hold
over a fraying socialist system. We should not believe that fine-
tuning incentives—
in the form of either carrots or sticks—will necessarily succeed;
much will
depend on developments in Pyongyang as well.
However, whether the five parties (the U.S., China, Japan,
South Korea, and
Russia) settle on a strategy of increased pressure on Pyongyang,
or new induce-
ments, or both, it is important to understand how recent changes
in North
Korea’s economy may affect these strategies. We make two
major points here,
one having to do with North Korea’s domestic political
economy and the second
with its foreign sector. First, there is strong evidence from as
early as 2005 that
the leadership has become increasingly wary of economic
reform.1 The onset of
the nuclear crisis and a more “hostile” international

environment clearly do not
favor reform, but it is likely that concerns about the
government’s weakening
control over the economy have also influenced the turn to a
more Stalinist eco-
nomic policy, culminating in the disastrous currency reform of
late 2009.
1. See also Andrei Lankov, “Pyongyang Strikes Back: North
Korean Policies of 2002–08 and
Attempts to Reverse De-Stalinization from Below,” Asia Policy
8 (July 2009), pp. 47–71.
2013 16:11:11 PM
HAGGARD AND NOLAND / NORTH KOREA SANCTiONS •
541
This caution with respect to economic reform has important
implications
for our understanding of North Korean intentions.2 General
economic in-
ducements, such as the lifting of sanctions, entry into
international financial
institutions (IFIs), or more formalized regional cooperation,
have never been
as appealing to the North Korean leadership as proponents of
engagement
have believed. The regime has always favored targeted transfers

that can be
directly controlled by the leadership, including food aid, heavy
fuel oil ship-
ments, or cash payments such as those secured from the 2000
North-South
summit and the Kaesong Industrial Complex (KIC) and Mt.
Kumgang proj-
ects.3 In the current environment, the appeal of general
economic induce-
ments is even less than it has been historically.
The second, and apparently contradictory, observation is that
the North
Korean economy has become more open. However, the
geographic composi-
tion of North Korea’s trade has shifted quite fundamentally.
Trade with
Japan has virtually collapsed. Trade and investment from
Europe stagnated
after the onset of the nuclear crisis. Following the inauguration
of President
Lee Myung-bak, South Korean aid fell sharply as well. At the
same time,
North Korea’s dependence on China has grown dramatically in
both abso-
lute and relative terms. In addition, North Korea has sought out
other part-
ners that do not pose sanctions risks, or with whom its nuclear
and missile
interests are aligned, most notably Iran, Syria, and potentially
Egypt.
These shifts in trade patterns make it much more difficult,
although not
impossible, to pursue an effective sanctions strategy. In the
absence of robust

cooperation from China, policy would have to target North
Korea’s interna-
tional financial ties or directly interdict trade moving by sea or
air. UNSCR
1874 takes some steps in this direction but remains focused
overwhelmingly on
trade in weapons, and is thus unlikely to be decisive even if
implemented fully.
Our discussion proceeds in four stages. In the first section, we
provide a
brief overview of the development of the North Korean
economy from the
collapse of the Soviet Union to the onset of the second nuclear
crisis.
2. Etel Solingen, Nuclear Logics: Contrasting Paths in East Asia
and the Middle East (Princeton,
N. J.: Princeton University Press, 2007).
3. KIC and the Mt. Kumgang project are two enclave
cooperation projects that have their ori-
gins in a 1998 negotiation between North Korea and the South
Korean firm Hyundai. For the ori-
gins of the projects, see Marcus Noland, Avoiding the
Apocalypse: The Future of the Two Koreas
(Washington, D.C.: Institute for International Economics,
2000). For details on their economic
significance, see Stephan Haggard and Marcus Noland, “North
Korea’s Foreign Economic Rela-
tions,” International Relations of the Asia Pacific 8:2 (May
2008), pp. 219–46.

2013 16:11:11 PM
Drawing on evidence from a survey of refugees, we emphasize
the impact of
the great famine of the mid-1990s on what we call
“marketization from
below,” the tentative policy changes that culminated in the
economic re-
forms of July 2002, and the evidence of retrenchment since
2005.
In the second section, we trace the evolution of the external
sector, noting
the ongoing ability of the country to finance a substantial
current-account
deficit and the steady diversification of its foreign economic
relations. Of
particular interest is the growth in North Korea’s trade and
investment with
other developing countries, most notably in the Middle East,
and the related
concerns about proliferation activities.
We then examine in greater detail the changing economic
relationship with
China and South Korea following important political
breakthroughs with both
countries in 2000–01. We show the growing weight of China in
North Korea’s
external economic relations, the increasingly commercial nature

of these ties,
and the minimal impact of the 2006 sanctions on the growth of
China-North
Korea trade and investment. These patterns contrast with North
Korea-South
Korea economic relations, which under Lee Myung-bak have
seen a profound
reversal from previous engagement strategies.
In the final section, we provide an overview of the sanctions
imposed
under UNSCR 1874. The resolution sent an important political
signal and
included several ground-breaking precedents, such as a right to
monitor, and
perhaps interdict, suspected arms sales and to use financial
sanctions against
violating entities. Nonetheless, the political compromises
required to pass
the sanctions through the Security Council limited their
substantive, as op-
posed to signaling, effect. In the absence of complementary
inducements
and constraints by the five parties, they will have minimal
impact.
THE NORTH KOREAN ECONOMY: 1990–2009
Following the collapse of the Soviet Union, the North Korean
economy went
into a steep decline, culminating in one of the most destructive
famines of the
20th century.4 The causes of this collapse were multiple,
including long-run
4. Daniel Goodkind and Lorraine West, “The North Korean

Famine and Its Demographic Im-
pact,” Population and Development Review 27 (2001), pp. 219–
38; Suk Lee, “Food Shortages and Eco-
nomic Institutions in the Democratic People’s Republic of
Korea,” unpublished doctoral dissertation,
Department of Economics, University of Warwick, Coventry,
U.K., 2003; Stephan Haggard and
Marcus Noland, Famine in North Korea: Markets, Aid, and
Reform (New York: Columbia University
Press, 2007).
2013 16:11:11 PM
543
distortions associated with the socialist growth model and the
lost opportuni-
ties for reform that resulted from the first nuclear crisis of
1993–94. The failure
to adjust to the rapid decline of Soviet support is the principal
reason both the
industrial and agricultural sectors of North Korea went into a
secular decline
in the first half of the 1990s. The floods of 1995 were only a
final shock.
In response to the crisis, the North Korean economy began to
undergo a

profound “marketization from below.” Households, work units,
local party
organs, government offices, and even military units all
scrambled for food,
venturing into new, monetized economic activities. Markets
began to play a
more important role, both in generating household income and
as a source
for retail purchases including food (abetted by the diversion of
aid from
external donors, primarily the World Food Program [WFP], that
began ar-
riving in 1995), and eventually a wider range of consumer
goods.
A 2008 survey we conducted of 300 North Korean refugees
living in South
Korea provides insight into the extent of this process of
informal marketiza-
tion.5 We asked respondents whether, in addition to their
regular work, they
engaged in other economic activities. A total of 71% said they
had engaged in
trading, 9% in private services, 19% in “other” business
activities, and 15% in
August 3 units, entrepreneurial businesses run out of the
traditional state-
owned enterprises (SOEs). A surprising 69% of all respondents
said that they
secured over half their income from private business activities,
and 46% said
they secured all of their income from private activities. These
results were mir-
rored on the expenditure side. Less than 10% of the respondents
in our survey
said that their primary source of food at the time they left North

Korea was the
state-run public distribution system (PDS) or their work places.
Moreover,
there is little difference in this response across different dates
of departure; if
anything, reliance on the market appears to have gone up over
time.
During the famine and its immediate aftermath, the regime had
little
choice but to acquiesce in these developments. In 1998 the
leadership intro-
duced constitutional revisions that tentatively broadened the
space for eco-
nomic activity outside direct state control.6 External political
developments
provided some additional hints of an economic opening; these
included the
5. For details on the survey, see Stephan Haggard and Marcus
Noland, “Reform from Below:
Behavioral and Institutional Change in North Korea,” Journal of
Economic Behavior and Organiza-
tion 73 (2010), pp. 133–52.
6. Ruediger Frank, “Economic Reforms in North Korea (1998–
2004): Systemic Restrictions,
Quantitative Analysis, Ideological Background,” Journal of the
Asia Pacific Economy 10:3 (2005), pp.
278–311.
2013 16:11:11 PM

2000 North-South summit, the resumption of high-level visits
with China
in 2000 and 2001, and the Koizumi summit with Japan in 2002.
These im-
portant diplomatic developments appeared to confirm that
political engage-
ment and economic reform were complementary. A relaxation of
tensions
provided space for the domestic reform effort, and a greater
focus on the
necessity of reform also motivated the leadership to broaden its
foreign po-
litical and economic relations.
The regime effectively ratified these developments with a set of
policy
changes announced in July 2002. There are ample grounds for
criticizing this
reform as a limited and flawed effort.7 Nonetheless, it allowed
the continued
growth of controlled markets and began or continued
incremental reforms
of the cooperatives (for example, by reducing the size of work
teams) and of
SOEs (for example, by granting greater managerial autonomy).
Yet, the timing of the reform proved highly inauspicious.
Within months of
the launching of the 2002 reforms, the second nuclear crisis had
broken. An

internal debate over the merits of reform continued through
2005, primarily
in the form of controversy over the weight that should be given
to the military
and heavy industrial sectors, as opposed to light industry and
agriculture.8
However, by 2005 signs had begun to emerge that hardliners
were winning the
policy battles. We consider briefly five examples of “reform in
reverse”:
• Developments in the food economy, including efforts to revive
the PDS;
• The restrictive response of the government to the development
of markets;
• The management of border trade;
• Government statements with respect to overall development
strategy,
most notably in the joint New Year’s editorial of 2009;
• The 2009 currency reform.
The Breakdown and Reconstitution of the Public Distribution
System
Prior to the famine of the mid-1990s, the government set
production quotas
for the cooperatives, provided farmers with rations at the time
of the harvest,
and distributed food to urban residents at nominal prices
through the PDS.
7. Haggard and Noland, “Reform from Below,” pp. 176–91.
8. Robert L. Carlin and Joel S. Wit, “North Korean Reform:
Politics, Economics, and Security,”

Adelphi Paper, no. 382 (London: International Institute for
Security Studies, 2006); Georgy Tolo-
raya, North Korea Now: Will the Clock Be Turned Back?
(Washington, D.C.: Brookings Institution,
2008); <http://www.nautilus.org>, accessed July 13, 2009.
2013 16:11:11 PM
545
Markets played virtually no role in the allocation of grain.
During the fam-
ine, the PDS broke down, and households relied on the market,
barter, pri-
vate farming, and other private activities such as foraging. The
influx of
foreign aid in the late 1990s provided the basis for a partial
revival of the
PDS because donors had no independent channels for
distributing food. But
the process of marketization continued apace, driven by partial
reforms in
the food sector, such as allowing some private plots and
expanding the role
of farmers’ markets, as well as the diversion of food aid and
cooperative
output into the market and growing commercial trade in food
across the

Chinese border.
In August 2005, the government decided to counter this trend
toward
marketization by reinstating the PDS (as of October 1) and
banning private
trading in grain. As in the past, the ability of the government to
implement
this policy varied across the country, and eventually it was
forced to quietly
shelve the policy.9 But such moves intensified again in the
wake of floods in
2006 and particularly 2007. First, the government increased
production
quotas for the next crop cycle, including through exactions
earmarked for
the military. Second, officials began to crack down on
“embezzlement” and
“corruption” on the part of cooperative managers. Third, new
restrictions
were placed on private plots and cooperative leasing of land, in
an effort to
redirect effort back into cooperative work.
Through a reconstruction of aggregate food balances, an
analysis of prices,
and direct observation by nongovernmental organizations
(NGOs) and
U.N. WFP observers, we now know that the food situation in
North Korea
was more precarious in 2008 than at any time since the
famine.10 These
shortages help explain the willingness of the North Korean
government to
engage in negotiations over a large food aid package with the
U.S., con-

cluded in May 2008. The shortages may have influenced
Pyongyang’s will-
ingness to negotiate over the broader nuclear issues as well. But
in other re-
spects, the 2007–08 crop cycle showed a continuing preference
for controls
and limits to engagement, most clearly visible in the decision in
May 2009
to terminate the 500,000 metric ton food aid program with the
U.S.
9. For an analysis of the state capacity to extract grain across
provinces, see Hazel Smith, “North
Korea: Market Opportunity, Poverty, and the Provinces,” New
Political Economy 14:2 (June 2009),
pp. 231–56.
10. Stephan Haggard and Marcus Noland, “Famine in North
Korea Redux?” Journal of Asian
Economics 20:4 (September 2009), pp. 384–95.
2013 16:11:11 PM
Responding to Markets and Traders
The breakdown of the PDS and the emergence of markets pose
important

challenges for the North Korean government, not only vis-à-vis
the country-
side but in the urban and industrial sectors as well. These
included a fall in
real wages and the migration of labor out of the state sector and
into market
activities, and the corresponding weakening of the SOE sector.
North
Korea’s food problems have increasingly come to resemble
those in market
economies, in which incomes, rather than political position, are
the deter-
minants of hunger and malnutrition.
Recent initiatives have not been limited to food but have
included a
wider assault on market activity, culminating in the 2009
confiscatory cur-
rency reform. This campaign began with the imposition of
escalating age
restrictions on market traders in the fall of 2007, ultimately
banning men
and women under 50 from trading in general markets in an
attempt to
force the “able-bodied” back into employment in state-
controlled entities
such as SOEs. From mid-January 2008, the government stepped
up in-
spections of the general markets (jangmadang), in an effort to
control the
range of goods offered. The apparent intention behind this
effort was re-
version to the more-limited farmers’ markets that were
permitted to trade
only in supplementary foodstuffs. In October 2008, North
Korean authori-

ties issued a decree through local commerce management
offices around the
country ordering all permanent markets to open only once every
10 days.
There have also been periodic reports of efforts to control
prices. Even prior
to the currency reform, control efforts intensified, with bans on
a variety of
foreign products that have been increasingly important to the
burgeoning
retail trade.
There is also evidence that the efforts to exercise control over
markets ex-
tended to cross-border trade as well. The 2004 and 2007
revisions of the
criminal code appear to place substantial weight not only on
economic
crimes in general but on violations of foreign exchange and
trade controls in
particular. Larger trading entities in the land ports along the
border, particu-
larly in Sinuiju, have fallen under government scrutiny.11 In a
noteworthy
development in April 2008, the central government dispatched a
team of
11. The city of Sinuiju is a locus of China-North Korea trade
and investment, and in 2002 was
slated for autonomous zone status in a bizarre scheme involving
Chinese fraudster Yang Bin. See
Marcus Noland, Korea after Kim Jong-il (Washington, D.C.:
Institute for International Economics,
2004), for details.

2013 16:11:11 PM
547
200 investigators to Sinuiju in the name of an Antisocialist
Conscience In-
vestigation to inspect the books of foreign trade organizations.
Prior to the currency reform, there was scant evidence of overt
social or
political backlash; the barriers to collective action in North
Korea are well
known. But a March 2008 episode in Chongjin suggested that
the markets
themselves could become the locus of protest and everyday
forms of resis-
tance. City officials had sought to enforce the age restriction on
female trad-
ers. In what appeared to be a coordinated action across several
markets in the
city, large groups of women staged protests against the ban on
trading on
March 4. Municipal authorities took the unusual step of
reopening the mar-
kets under the authority of the local ministry of labor on March
5 but were
subsequently compelled to enforce the ban at the insistence of
the central
government. The episode reveals the complex pressures on local

officials
squeezed between the dictates of Pyongyang, the absence of
resources,
mounting political and social pressures, and the risks of further
repression.
The Border Problem
The dramatic increase in trade with China has resulted in the
creation of dense
business networks that include major Chinese and North Korean
enterprises,
smaller Chinese and North Korean businesses, and North
Koreans with rela-
tives in China who are permitted to travel. As a result, the
border poses
profound challenges to the North Korean leadership. When
economic circum-
stances deteriorate, the incentives rise for North Koreans to
move into China,
either permanently or in search of business opportunities and
food. With this
movement comes the gradual breakdown of the government’s
monopoly on
information about the outside world. Moeover, cross-border
trade has come to
include an array of communications and cultural products that
directly under-
mine the government’s monopoly on information: from small
televisions ca-
pable of receiving Chinese broadcasts in border areas to South
Korean videos
and DVDs and even mobile phones.12 The border also poses a
variety of more-
direct economic problems. Illicit border trade in drugs,
particularly metham-

phetamines, has been widely reported as has the smuggling of
scrap metal and
other products that reflect the looting of SOEs and public
infrastructure.
12. North Korea has made several attempts to introduce cellular
services on a limited basis. The
most recent involves a joint venture with the Egyptian firm
Orascom Telecommunications, which
is now providing services in Pyongyang. See Marcus Noland,
“Telecommunications in North Korea:
Has Orascom Made the Connection?” North Korean Review 5:1
(Spring 2009), pp. 62–74.
2013 16:11:11 PM
Prior to changes in the North Korean penal code in 2004, a
person who il-
legally crossed a “frontier of the Republic” faced a sentence of
up to three years
in a political penal labor colony. Those who did not appear
politically danger-
ous were sent to village- or unit-level labor camps, where they
would spend
between three months and three years in forced labor. Those
classified as “po-
litical offenders” faced more severe penalties, including

indefinite terms of im-
prisonment and forced labor, confiscation of property, or death.
Regulations
under the 2004 penal code appear to have codified the
differential treatment
between economic refugees and those cases deemed political,
stipulating
lighter sentences for those crossing for economic reasons,
although legal revi-
sions did not necessarily reflect the discretion exercised by
officials.
The recurrence of severe food shortages following the floods of
2007, …
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ress
Realism, Robert Jervis
Neoliberalism, and
Cooperation
Understanding the Debate
The study of conflict
and cooperation has been an enduring task of scholars, with the
most recent
arguments being between realists and neoliberal
institutionalists.1 Most stu-
dents of the subject believe that realists argue that international

politics is
characterized by great conflict and that institutions play only a
small role. They
also believe that neoliberals claim that cooperation is more
extensive, in large
part because institutions are potent.
I do not think that this formulation of the debate is correct. In
the first section
of this article, I argue that the realist-neoliberal disagreement
over conflict is
not about its extent but about whether it is unnecessary, given
states' goals. In
this context we cannot treat realism as monolithic, but must
distinguish be-
tween the offensive and defensive variants.2 In the second
section, I explain
Robert Jervis is Adlai E. Stevenson Professor of International
Politics at Columbia University and author
most recently of System Effects: Complexity in Political and
Social Life (Princeton, N.J.: Princeton
University Press, 1997).
I am grateful for comments by David Baldwin, Page Fortna,
Robert Keohane, Jeffrey Legro, Helen
Milner, Andrew Moravcsik, and Kenneth Waltz.
1. John J. Mearsheimer, "The False Promise of International
Institutions," International Security, Vol.
19, No. 3 (Winter 1994/95), pp. 5-49; Robert 0. Keohane and
Lisa L. Martin, "The Promise of
Institutional Theory," International Security, Vol. 20, No. 1
(Summer 1995), pp. 39-51; Mearsheimer
"A Realist Reply," International Security, Vol. 20, No. 1
(Summer 1995), pp. 82-93. See also Martin

and Beth Simmons, "Theories and Empirical Studies of
International Institutions," International
Organization, Vol. 52, No. 4 (Autumn 1998), pp. 729-758; and
Keohane and Martin "Institutional
Theory, Endogeneity, and Delegation," paper prepared for
meeting on "Progress in International
Relations Theory," January 15-16, 1999, Scottsdale, Arizona,
which says that "institutional theory"
is a more descriptive title than "neoliberal institutionalism."
2. My definition of the distinction between offensive and
defensive realism can be found below,
pp. 48-50. For other discussions, see Jack L. Snyder, Myths of
Empire: Domestic Politics and Interna-
tional Ambition (Ithaca, N.Y.: Cornell University Press, 1991);
Fareed Zakaria, "Realism and Domes-
tic Politics," International Security, Vol. 17, No. 1 (Summer
1992), pp. 177-198; Charles L. Glas'er,
"Realists as Optimists: Cooperation as Self-Help," International
Security, Vol. 19, No. 3 (Winter
1994/95), pp. 50-90; Randall L. Schweller, "Neorealism's
Status-Quo Bias: What Security Di-
lemma?" Security Studies, Vol. 5, No. 3 (Spring 1996), pp. 90-
121; Stephen Brooks, "Dueling
Realisms," International Organization, Vol. 51, No. 3 (Summer
1997), pp. 445-478; Eric J. Labs,
"Beyond Victory: Offensive Realism and the Expansion of War
Aims," Security Studies, Vol. 6, No.
International Security, Vol. 24, No. 1 (Summer 1999), pp. 42-63
? 1999 by the President and Fellows of Harvard College and the
Massachusetts Institute of Technology.
42

Realism, Neoliberalism, and Cooperation | 43
the disagreement in terms of what each school of thought3
believes would have
to change to produce greater cooperation. This raises the
question of institu-
tions. In the third section, I argue that realists claim not that
institutions lack
utility, but that they are not autonomous in the sense of being
more than a tool
of statecraft. Even if it is true that cooperation and the presence
of institutions
are correlated, it does not follow that cooperation can be
increased by estab-
lishing institutions where they do not exist, which I think is
why most people
find the realist-neoliberal debate over cooperation of more than
academic
interest.
I do not want to exaggerate the gap separating realism and
neoliberalism.
Robert Keohane and Lisa Martin have noted that "for better of
worse, institu-
tional theory is a half-sibling of neorealism."4 Both realism and
neoliberalism
start from the assumption that the absence of a sovereign
authority that can
make and enforce binding agreements creates opportunities for
states to ad-
vance their interests unilaterally and makes it important and
difficult for states
to cooperate with one another.5 States must worry that others
will seek to take
4 (Summer 1997), pp. 1-49; and Andrew Kydd, "Sheep in

Sheep's Clothing: Why Security Seekers
Do Not Fight Each Other," Security Studies, Vol. 7, No. 1
(Autumn 1997), pp. 114-155. Glaser uses
the term "contingent realism," which I think is more descriptive
than "defensive realism," but I
use the latter term because it has gained greater currency.
3. I use this term because I do not think realism and neoliberal
institutionalism can be sharply
defined. Indeed, they are better labeled schools of thought or
approaches than theories. Although
this vagueness contributes to confusion as scholars talk past one
another, a precise definition would
be necessary only if either of these approaches really were a
tight theory. In that case, falsification
of propositions derived from the theory would cast doubt on the
entire enterprise. But, for better
and for worse, neither of these approaches has the sort of
integrity that would permit the use of
that logic. For an attempt to formulate a rigorous, but I think
excessively narrow, definition of
realism, see Jeffrey W. Legro and Andrew Moravcsik, "Is
Anybody Still a Realist?" International
Security, Vol. 24, No. 2 (Fall 1999). See also Kenneth N.
Waltz, "Realist Thought and Neorealist
Theory," in Robert L. Rothstein, ed., The Evolution of Theory
in International Relations (Columbia:
University of South Carolina Press, 1991), pp. 21-38; and the
exchange between Colin Elman and
Waltz in Security Studies, Vol. 6, No. 1 (Autumn 1996), pp. 7-
61.
4. Keohane and Martin, "Institutional Theory, Endogeneity, and
Delegation," p. 3; Robert 0.
Keohane, After Hegemony: Cooperation and Discord in the
World Political Economy (Princeton, N.J.:
Princeton University Press, 1984), pp. 9, 29, 67; Robert 0.
Keohane, International Institutions and

State Power (Boulder, Colo.: Westview, 1989), pp. 7-9. See also
Glaser, "Realists as Optimists," p. 85;
Randall L. Schweller and David Priess, "A Tale of Two
Realisms: Expanding the Institutions
Debate," Mershon International Studies Review, Vol. 41,
Supplement 1 (May 1997), pp. 1-32; and
Martin and Simmons, "Theories and Empirical Studies of
International Institutions," pp. 739-740.
In the statement quoted, Keohane and Martin refer to
neorealism, not realism. For the purposes
of this article, I do not need to distinguish between the two, as
Waltz does very well in "Realist
Thought and Neorealist Theory."
5. The realization that commitment is difficult within states as
well has led to enormous progress
in understanding domestic politics and arrangements among
private actors, thus making recent
analyses in American and comparative politics appear quite
familiar to students of international
politics. See Helen V. Milner, "Rationalizing Politics: The
Emerging Synthesis among International
International Security 24:1 | 44
advantage of them; agreements must be crafted to minimize the
danger of
double crosses; the incentives that operate when agreements are
signed may
be quite different when the time comes for them to be carried
out; and both
promises and threats need to be made credible. Thus it will take
some disen-
tangling to isolate the areas in which there are important
disputes between

realism and neoliberalism.6
Possibilities for Cooperation
Is it true that realism denies the possibility of international
cooperation or, less
extremely, that realists see less cooperation in world politics
than do neoliberal
institutionalists? I think the former statement is flatly wrong.
The latter is also
incorrect, but when properly reformulated, it points in a
productive direction.
FALSE OR EXAGGERATED ISSUES
The affinity between realism and neoliberal institutionalism is
not the only
reason to doubt the claim that realism has no place for
cooperation. This view
would imply that conflict of interest is total and that whatever
one state gains,
others must lose.7 This vision of a zero-sum world is
implausible. The sense
of international politics as characterized by constant bargaining,
which is
central to realism (but not to realism alone, of course), implies
a mixture of
common and conflicting interests. One can have fighting in a
zero-sum world,
but not politics.
More worthy of exploration is the less extreme view that
realism sees world
politics as much more conflictful than does neoliberal
institutionalism.8 For

Politics and American and Comparative Politics," International
Organization, Vol. 52, No. 4 (Autumn
1998), pp. 759-786. It is often assumed that anarchy and the
possibility of the use of force are the
same, but this is not correct, as shown by Milner, "The
Assumption of Anarchy in International
Relations Theory: A Critique," Review of International Studies,
Vol. 17, No. 1 (January 1991), pp. 71-
74; and Robert Powell, "Anarchy in International Relations
Theory: The Neorealist-Neoliberal
Debate," International Organization, Vol. 48, No. 2 (Spring
1994), pp. 330-334.
6. The differences may be sharper in some central issues I am
putting aside here: the efficacy and
fungibility of various forms of power, especially military
power; the differences in state behavior
when force, coercion, or unilateral solutions are available; and
the frequency of such situations.
7. This view is hard even to conceptualize in a multipolar
world. Any gain of territory or power
by state A would have to come at the expense of some other
state, but if it diminishes state B or
state C, this might aid state D, at least in the short run, if D is
the rival of B or C. Here the situation
is zero-sum (or, more technically, constant sum) overall, but not
all actors are hurt, and some may
be advantaged, by another's gain.
8. How to measure and even conceptualize conflict and conflict
of interest is not easy. See Robert
Axelrod, Conflict of Interest: A Theory of Divergent Goals with
Applications to Politics (Chicago:
Markham, 1970).

realists, world politics is a continuing if not an unrelenting
struggle for sur-
vival, advantage, and often dominance. Neoliberals do not deny
the existence
of cases of extreme conflict, but they do not see them as the
entire or even a
representative picture of world politics. In many cases and in
many areas,
states are able to work together to mitigate the effects of
anarchy, produce
mutual gains, and avoid shared harm.
Although not entirely misguided, this characterization of the
difference
between realism and neoliberalism is still wrong. To start with,
some of this
difference reflects the issues that the schools of thought
analyze. Neoliberal
institutionalists concentrate on issues of international political
economy (IPE)
and the environment; realists are more prone to study
international security
and the causes, conduct, and consequences of wars. Thus,
although it would
be correct to say that one sees more conflict in the world
analyzed by realist
scholars than in the world analyzed by neoliberals, this is at
least in part
because they study different worlds.9
Similarly, while neoliberal institutionalism is more concerned
with efficiency
and realism focuses more on issues of distribution, which are
closely linked to
power as both an instrument and a stake,10 it is not clear that

this represents
different views about the world or a difference in the choice of
subject matter.
Neoliberalism's argument (usually implicit) that distributional
conflicts are
usually less important than the potential common gains stems at
least in part
from its substantive concern with issues in which large mutual
benefits are
9. The differences between the issue areas are not inherent, but
it is generally believed that the
factors that are conducive to cooperation, such as vulnerability,
offensive advantage, and lack of
transparency, are more prevalent in IPE than in the security
arena. See Robert Jervis, "Security
Regimes," International Organization, Vol. 36, No. 2 (Spring
1982), pp. 358-360; and Charles H.
Lipson, "International Cooperation in Economic and Security
Affairs," World Politics, Vol. 37, No.
1 (October 1984), pp. 1-23.
10. Nonetheless, I think neoliberals were enlightened by Jack
Knight's argument that institutions
can affect not only the level of cooperation, but who gains
more. See Knight, Institutions and Social
Conflict (New York: Cambridge University Press, 1992).
Similarly, while neoliberals have drawn
heavily on the literature on organizations, they pay little
attention to power-laden analyses such
as Charles Perrow, Complex Organizations: A Critical Essay, 3d
ed. (New York: Random House, 1986).
Robert 0. Keohane acknowledges that he initially
underestimated the significance of distributive
issues. See Keohane "Institutional Theory and the Realist
Challenge after the Cold War," in David
A. Baldwin, ed., Neorealism and Neoliberalism: The

Contemporary Debate (New York: Columbia
University Press, 1993), pp. 446-447. See also Keohane and
Martin, "The Promise of Institutional
Theory," pp. 45-46. For a good discussion of distribution and
institutions, see Powell, "Anarchy
in International Relations Theory," pp. 338-343. For an
argument that the shape of domestic
institutions affects both the chance of international agreement
and the distribution of the benefits,
see Helen V. Milner, Interests, Institutions, and Information:
Domestic Politics and International Relations
(Princeton, N.J.: Princeton University Press, 1997).
believed to be possible, such as protecting the environment,
rather than with
disputes over values such as territory, status, and influence (if
not dominance).
The related difference between realists and neoliberals on the
issue of rela-
tive and absolute gains also should not be exaggerated, as recent
formulations
have explained.11 To start with, it is not clear whether
neoliberals are arguing
that realists are incorrect to assert that states often are
concerned with relative
gains or that it is the states that err when they are thus
concerned, perhaps
because they have been socialized by realist prescriptions.
Substantively, real-
ists never claimed that relative gains were all that mattered-to
assert this

would be to declare international politics a zero-sum game-and
many realists
have been sensitive to possibilities of mutual security. Thus
within a few
months of the explosion of the first atomic bomb, realist
scholars noted that
once both sides had a sufficient number of these weapons, little
could be
gained by further increases and there was little to fear from the
other side's
increases. The title of the first major book on the subject, The
Absolute Weapon,
indicated quite clearly the radical change from a world in which
the greatest
form of military power was relative.12 Indeed, this effect also
undercuts much
of the concern over relative gains in the economic area because
they have much
less impact on security.13 Neoliberals also have adopted a less
extreme position
on the absolute-relative gains debate. They initially cast their
arguments in
11. Robert Powell, "Absolute and Relative Gains in
International Relations Theory," American
Political Science Review, Vol. 85, No. 4 (December 1991), pp.
701-726; Powell, "Anarchy in Interna-
tional Relations Theory," pp. 334-338; Glaser, "Realists as
Optimists," pp. 74-75; and Arthur A.
Stein, Why Nations Cooperate (Ithaca, N.Y.: Cornell University
Press, 1990), chap. 5. Issues of relative
versus absolute gains are not the same as distribution versus
efficiency because an actor can care
about distribution even in the absence of concerns about relative
gains. It should also be noted
that although the main reason for seeking relative gains today is

to improve one's absolute situation
tomorrow, some goods are inherently positional. See the classic
and yet underappreciated analysis
of Fred Hirsch, Social Limits to Growth (Cambridge, Mass.:
Harvard University Press, 1976).
12. Bernard Brodie et al., The Absolute Weapon (New York:
Harcourt Brace, 1946).
13. When states are allied-and expect to remain so in the future
-ach may gain "security
externalities" from the others' economic gains. See Joanne
Gowa, Allies, Adversaries, and Interna-
tional Trade (Princeton, N.J.: Princeton University Press, 1994),
chap. 3. But relative economic gains
can redistribute power within an alliance (as shown by Arthur
A. Stein, "The Hegemon's Dilemma:
Great Britain, the United States, and the International Economic
Order," International Organization,
Vol. 38, No. 2 [Spring 1984], pp. 355-386), and will be of
concern if actors believe that they will
influence future wealth. See Robert Jervis, "International
Primacy: Is the Game Worth the Candle?"
International Security, Vol. 17, No. 4 (Spring 1993), pp. 54-59;
and John C. Matthews III, "Current
Gains and Future Outcomes: When Cumulative Relative Gains
Matter," International Security, Vol.
21, No. 1 (Summer 1996), pp. 112-146. Furthermore, despite the
existence of nuclear weapons, an
extreme gap in the economic health of the United States and
Western Europe on the one hand,
and the Soviet Union on the other, undermined the latter's
security, largely by sapping its
self-confidence.

terms of absolute gains, but soon acknowledged that it is
dangerous for one
state to seek absolute gains that would put it at a relative
disadvantage
vis-a-vis an adversary.14
AREA OF DISAGREEMENT: NOT CONFLICT, BUT
UNNECESSARY CONFLICT
The disagreements between realism and neoliberalism have not
only been
exaggerated, but they have also been misunderstood.
Neoliberalism does not
see more cooperation than does realism; rather, neoliberalism
believes that
there is much more unrealized or potential cooperation than
does realism, and
the schools of thought disagree about how much conflict in
world politics is
unnecessary or avoidable in the sense of actors failing to agree
even though their
preferences overlap.15 To put it in a context that frames the
next section of this
article, they differ over the changes that they believe are
feasible and required
to reduce conflict.
When a realist such as Stephen Krasner argues that much of
international
politics is "life on the Pareto frontier," he implies that states
already have been
able to cooperate to such an extent that no further moves can
make all of them
better off.16 For neoliberals, in the absence of institutions we
are often far from

this frontier, and much of international politics resembles a
prisoner's dilemma
or a market failure in producing suboptimal outcomes for all
concerned.
Although neoliberals are strongly influenced by neoclassical
economics, they
reject the idea that the free play of political forces will capture
all possible joint
14. The greatest deficiency in the relative/absolute gains
literature is that it has remained largely
at the level of theory and prescription, with much less attention
to when decisionmakers do in fact
exhibit relative-gains concerns. Thus as noteworthy as the fact
that leading academics employed
impeccable logic to demonstrate the irrelevance of relative
advantage in a world of mutual
second-strike capabilities was the fact that each side's
decisionmakers remained unpersuaded,
continued to fear that the other sought nuclear superiority, and
sought advantage, if not supe-
riority, for itself. For a related argument, see Glaser, "Realists
as Optimists," pp. 86-88. For a good
empirical study in the trade area, see Michael Mastanduno, "Do
Relative Gains Matter? America's
Response to Japanese Industrial Policy," International Security,
Vol. 16, No. 1 (Summer 1991),
pp. 73-113.
15. For a parallel discussion of "real" and "illusory"
incompatibility, see Kenneth E. Boulding,
"National Images and International Systems," Journal of
Conflict Resolution, Vol. 3, No. 2 (June 1959),
p. 130. This distinction and the one I am making are not without
their difficulties, as I discuss
below. The move from conflicting preferences to conflictful
behavior is not entirely direct because

if information is complete and outcomes are infinitely divisible,
the actors should be able to find
a way of reaching the outcome that is cheaper than engaging in
costly conflict. This is known as
the Hicks paradox in economics and was introduced into the
international relations literature by
James D. Fearon in "Rationalist Explanations for War,"
International Organization, Vol. 49, No. 3
(Summer 1995), pp. 379-414. The subject is important but not
central to the issues of concern here.
16. Stephen D. Krasner, "Global Communication and National
Power: Life on the Pareto Frontier,"
World Politics, Vol. 43, No. 3 (April 1991), pp. 336-366.
gains."7 Thus the old joke about two neoclassical economists
walking down the
street: one sees a $20 bill, but before he can bend down to pick
it up, his
colleague says, "Don't bother; if it were really there someone
would have
gotten it before us." For neoliberal institutionalists, the world is
littered with
$20 bills. Because they believe that there are many mutually
beneficial arrange-
ments that states forgo because of the fear that others will cheat
or take
advantage of them, they see important gains to be made through
the more
artful arrangement of policies. Like neoclassical economists,
some realists
doubt this, believing that all available $20 bills have already
been picked up.

For them, it is unfortunately true that we live in the best of all
possible worlds.
And if this is the case, distributional issues loom large, making
it hard to see
how neoliberalist analysis can be brought to bear.18
To proceed further, we need to divide realism into offensive and
defensive
categories. Offensive realists think that few important situations
in interna-
tional politics resemble a prisoner's dilemma. This model does
not elucidate
the most crucial area of the pursuit of security by major powers
because mutual
security either is not sought or cannot be gained: one or more of
the states is
willing to risk war to expand or has security requirements that
are incompat-
ible with those of others. Thus for John Mearsheimer, states
maximize power
(which must be seen in relative terms) either because it is the
means by which
they can be secure or because they want other values that power
is (correctly)
believed to bring.19 For Colin Gray, arms races are a reflection
of conflicts of
interest, and wars result not because of the mutual pursuit of
security but
because one if not both sides is aggressive.20 For Randall
Schweller, it is
especially important to "bring the revisionist state back in"
because security-
seeking states do not get into unnecessary conflicts: they are
able to discern
17. This is not to say that all arguments that actors are below

the Pareto frontier share neoliber-
alism's stress on the importance of institutions. Thus Deborah
W. Larson's analysis of missed
opportunities during the Cold War seeks to demonstrate that, at
a number of points, lack of trust
and related psychological impediments prevented the United
States and the Soviet Union from
relaxing tensions and reaching agreements that would have
made both of them both better off.
See Larson, Anatomy of Mistrust: U.S.-Soviet Relations during
the Cold War (Ithaca, N.Y.: Cornell
18. For discussion, see Martin and Simmons, "Theories and
Empirical Studies of International
Institutions," pp. 744-747; and James K. Sebenius, "Challenging
Conventional Explanations of
International Cooperation," International Organization, Vol. 46,
No. 1 (Winter 1992), pp. 334-339.
19. John J. Mearsheimer, Great Power Politics (New York:
W.W. Norton, forthcoming).
20. Of Gray's voluminous writings, see, for example, Colin
Gray, Weapons Don't Make War: Policy,
Strategy, and Military Technology (Lawrence: University Press
of Kansas, 1993); and Gray, House of
Cards: Why Arms Control Must Fail (Ithaca, N.Y.: Cornell
one another's intentions and can move sufficiently quickly to
protect them-
selves if others should become menacing.21
Defensive realists disagree, and take a position on the role of

unnecessary
conflict that has more in common with neoliberals. Scholars
such as Charles
Glaser, John Herz, Stephen Van Evera, and myself see the
prisoner's dilemma
as capturing important dynamics of international politics,
especially through
the operation of the security dilemma-the ways in which the
attempt by one
state to increase its security has the effect (often unintended and
sometimes
unforeseen) of decreasing the security of others. Often states
would be willing
to settle for the status quo and are driven more by fear than by
the desire to
make gains. According to this "spiral model" of international
politics, both
structural and perceptual reasons conspire to render self-
defeating the actions
states take to protect themselves. In many cases, it is the
interactive process
among states that generates conflict rather than merely reveals
or enacts the
preexisting differences in goals. Both sides would be satisfied
with mutual
security; international politics represents tragedy rather than
evil as the actions
of states make it even harder for them to be secure. This is not
true in all cases,
however. Aggressor states are common; security and other
interests often
create differences that are irreconcilable. In these and only
these instances,
defensive realists see conflict as unavoidable.
Despite important similarities, three differences make defensive

realists less
optimistic than neoliberals. First, as noted above, defensive
realists believe that
only in a subset (size unspecified) of situations is conflict
unnecessary. Second,
and related to this, they believe that it is often hard for states to
tell which
situation they are in. The difficulty status quo powers have in
recognizing one
another, in part because of deeply rooted political and
perceptual biases, is
compounded by the high price to be paid for mistaking an
expansionist state
for a partner that seeks mainly security. Third, defensive
realists have less faith
in the ability of actors to reach common interests than do
neoliberals: in some
cases, mistrust and fear of cheating may be too severe to be
overcome. The
extent of the differences between the schools of thought are
difficult to esti-
mate, however, because realism and neoliberalism have rarely
analyzed com-
21. Randall L. Schweller, "Bandwagoning for Profit: Bringing
the Revisionist State Back In,"
International Security, Vol. 19, No. 1 (Summer 1994), pp. 72-
107; and Schweller, "Neorealism's
Status-Quo Bias." See also Kydd, "Sheep in Sheep's Clothing."
This is why Charles Glaser sees
"realists as optimists": in most circumstances, states that seek
security can develop a military
posture that signals their benign intentions, thereby minimizing
unnecessary conflict. Glaser, …

The Pacific Review, Vol. 22 No. 2 May 2009: 205–232
The Senkaku/Diaoyu dispute
and Sino-Japanese political-economic
relations: cold politics and hot
economics?
Min Gyo Koo
Abstract Can economic interdependence reduce conflicts among
states in East
Asia? The so-called ‘cold politics and hot economics’ has
become a defining feature
of Sino-Japanese political-economic relations. This puzzling
pattern of interaction
is clearly illustrated in the sovereignty dispute over the
Senkaku/Diaoyu Islands.
The island dispute has unfolded in five rounds of distinct
clashes thus far. From one
perspective, the competitive elements in the island dispute make
it difficult for both
Japan and China to give way to the other side on the territorial
and maritime issues.
At the same time, the two countries have successfully managed
to contain their
respective territorial and maritime claims thus far. Drawing on
the liberal peace
theory, this article systematically demonstrates that economic
interdependence has
repeatedly fostered the de-escalation of Sino-Japanese conflict
over territorial and
maritime rights.
Keywords Sino-Japanese relations; Senkaku/Diaoyu Islands;
East China Sea; East

Asian territorial dispute; liberal peace.
Introduction
Political wariness and rivalry have characterized postwar Sino-
Japanese
relations. Diplomacy continues to fail to ease deep mutual
suspicions.
Nevertheless, the two countries have forged closer economic
ties, currently
making them one of the most important economic partners for
each other.1
Min Gyo Koo is Assistant Professor in the Department of Public
Administration at Yonsei
University, Korea. His areas of research interest include East
Asian territorial disputes, the
political economy of the Asia Pacific, and East Asian economic
and security regionalism.
Address: Department of Public Administration, Yonsei
University, Seoul 120-749, Korea.
E-mail: [email protected]
The Pacific Review
ISSN 0951-2748 print/ISSN 1470-1332 online C© 2009 Taylor
& Francis
http://www.informaworld.com/journals
DOI: 10.1080/09512740902815342
206 The Pacific Review
As one commentator notes:

There is a huge disconnect between the economic and political
re-
lations of China and Japan . . . Japanese business enthusiasm for
the
China economic miracle continues. But at the political level,
there is
no talk of integration. Rather, there is a stiffening back of
nationalism
in both countries.
(Gerald Curtis quoted in Marquand 2005)
The so-called ‘cold politics and hot economics’ (seirei keinetsu
in Japanese
or zhengleng jingre in Chinese) has thus become a defining
feature of their
bilateral relations.
Nowhere is this puzzling interaction more clearly illustrated
than in the
unsettled sovereignty dispute over a small group of rocks in the
East China
Sea. These offshore islands – known as Senkaku Retto (Rocky
Hill Islands)
in Japan and as Diaoyutai (Fishing Platform Islands) in China –
are effec-
tively controlled by Japan, but the Chinese challenge its
sovereignty claim.
The Senkaku/Diaoyu Islands may lack the same degree of
strategic and eco-
nomic value as the Paracel and Spratly Islands for China and the
Northern
Territories/Kurile Islands for Japan.2 Yet the competitive
elements in the
Senkaku/Diaoyu dispute, which has symbolic, political,
economic, and his-

torical significance, make it difficult for both China and Japan
to give way to
the other side on the territorial and maritime issues.
Furthermore, a conces-
sion of sovereignty over the Senkaku/Diaoyu Islands and nearby
maritime
zone could possibly jeopardize their respective claims to the
other disputed
islands.
Empirically, we see the Senkaku/Diaoyu dispute persisting,
neither
reaching a peaceful settlement nor escalating into a full-scale
militarized
conflict. Conventional explanations for this phenomenon have
largely fo-
cused on one or more of the following factors: the validity of
contending
historical evidence, domestic legitimization processes,
competition for en-
ergy and marine resources, historical animosities, and the role
of the United
States as an architect of the postwar Asian system. Despite their
partial ex-
planatory utility, these approaches cannot fully capture the
continuing pat-
tern of the rise and fall of conflict over the Senkaku/Diaoyu
Islands.
This article argues that a liberal peace perspective offers a
better account.
The liberal peace argument hinges upon an assumption that
economic in-
terdependence fosters peaceful relations by giving states an
economic in-
centive to avoid costly military disputes. I show that both Japan

and China
have found it in their interest to de-escalate conflicts because of
concerns
over damaging their economic relationship, thus supporting a
liberal peace
interpretation.
The remainder of the study proceeds as follows. The second
sec-
tion characterizes the key feature of the Senkaku/Diaoyu
dispute in the
broad context of East Asian island disputes. After reviewing
conventional
M. G. Koo: Cold politics and hot economics? 207
explanations, the third section develops an alternative thesis
that links dif-
ferent channels of economic interdependence to the prevention
of inter-
national conflict. From this liberal peace perspective, the fourth
section
examines the transition between, and conclusion of, five
different rounds
of clashes. To summarize the main findings, the initial
impetuses of the is-
land dispute tend to come from ultra-nationalist activities either
in Japan or
China, or both. At first, both Beijing and Tokyo used them to
mobilize polit-
ical support for their regime or particular policy goals.
Eventually, however,
both governments sought to minimize diplomatic damage,
fearing that con-

tending Sino-Japanese nationalisms could snowball into a
larger, possibly
destabilizing movement that would undermine bilateral
economic ties. The
fifth section draws conclusions and policy implications.
Characteristics of East Asian island disputes
East Asia is home to many of the world’s most vexing territorial
disputes.
There are at least thirty-five territorial dyads in the region
contiguous
on land or within 400 nautical miles (nm) – the sum of two
hypothetical
countries’ 200 nm exclusive economic zones (EEZs) – of water
between
their undisputed land territories. Most of these dyads have
outstanding
territorial disagreements with each other: China–Taiwan,
China–Japan,
China–Vietnam, China–Philippines, North Korea–South Korea,
South
Korea–Japan, Japan–Russia, Philippines–Taiwan, Thailand–
Myanmar,
Thailand–Cambodia, and Cambodia–Vietnam, among others.
The territories in dispute need not cover the entire soil of a
particular
country, as in the cases of the two Chinas and the two Koreas,
in order to se-
riously strain interstate relationships. Even small, barely
habitable offshore
islands can serve as the most persistent and explosive bone of
contention.
Aside from the Senkaku/Diaoyu dispute, examples of
unresolved island

disputes include competing sovereignty claims to the
Dokdo/Takeshima
Islands in the East Sea/Sea of Japan, the Northern
Territories/Kurile Is-
lands in the Northwest Pacific Ocean, the Islands of Sipadan,
Sebatik, and
Ligitan in the Celebes Sea, and the Paracel and Spratly Islands
in the South
China Sea.
In the East Asian Seas, few target countries, whose sovereignty
claim is
challenged by revisionist countries, recognize the existence of
disputes at
all, preventing claimant countries from engaging in
negotiations. Further-
more, a periodic pattern exists in the iteration of disputes with
little indi-
cation of early settlement. One can find examples of the
aggressive use of
military force and intransigent bargaining strategies. For
instance, China
has the most assertive and controversial claims to the Paracel
and Spratly
archipelagos. Although Vietnam is not the only party to the
many territo-
rial disputes with China, it has had the sharpest differences with
its longtime
archrival, particularly since China took the Western Paracel
Islands by force
from what was then South Vietnam in 1974 (Lo 1989).
208 The Pacific Review

Despite regular outbreak of tension, military inaction and
accommoda-
tive diplomacy have equally been evident. For instance, the
postwar dispute
over the Dokdo/Takeshima Islands has shown a periodic pattern
of continu-
ity and mutual restraint. Although either natural resources or
ultra-rightist
activities have provided the initial impetuses for regular flare-
ups since the
early 1950s, both South Korea and Japan have followed
restrained policies
to prevent the island dispute from undermining bilateral
economic relations
(Koo 2005: 84–140).
A similar pattern is evident in the Senkaku/Diaoyu dispute. The
first
flare-up of the dispute started in late 1968 when the findings of
a high
probability of oil and gas deposits near the disputed islands
made every-
one scramble for energy. Yet the island issue gradually took a
back seat by
the end of 1971. The second round surfaced in a more serious
manner in
spring 1978, but both China and Japan successfully shelved the
island issue
towards the end of the same year. Catalyzed by lighthouses built
on the is-
lands by an ultra-nationalist Japanese group, the third and
fourth rounds
of dispute took place in September 1990 and in July 1996,
respectively.
However, by the ends of the respective years both governments
once again

sought to defuse the tension. Finally, the latest round in 2004
was catalyzed
by a group of Chinese activists and further exacerbated by
intense resource
competition in the East China Sea throughout 2005. Although
the latest
flare-up effectively brought Sino-Japanese diplomatic relations
to the low-
est ebb, both countries again chose to exercise restrained
policies for fear of
escalating the sovereignty and resource issues out of control.
How might we
account for the pattern of a repeated rise of tensions and then
subsequent
de-escalation in the Senkaku/Diaoyu dispute? It is to this
question that we
now turn.
Conventional explanations and the liberal peace perspective
We can characterize existing explanations of the
Senkaku/Diaoyu into three
categories: (1) the first accounts for the dispute’s ongoing
nature and mo-
tivations for dispute escalation; (2) the second examines the
factors that
account for the mutual restraint that has repeatedly been shown
in past dis-
putes; and (3) the third attempts to account for periodic patterns
of dispute
escalation and de-escalation. Despite their partial explanatory
utility, none
of these traditional accounts fully explain the patterns we see.
After review-
ing the strengths and weaknesses of these different approaches,
I develop a

liberal peace hypothesis to account for the lacunae in these
explanations.
Explanations for continuity and escalation
In this category of work, some arguments are based directly or
indirectly on
historical and cultural approaches to international relations.
Symbolic at-
tachment of territory to national identity and pride often makes
territorial
M. G. Koo: Cold politics and hot economics? 209
conflicts all the more intractable and difficult to resolve. This
can be the
case even when pragmatic solutions – for example setting aside
sovereignty
claims in favor of shared ownership – may appear applicable in
theory.
From this perspective, China’s growing irredentist tendency,
combined with
Japan’s habit of glossing over its war past, increases the
likelihood of
territorial conflicts by fueling nationalist sentiments in its
neighbors
(Suganuma 2000: 3–10; Suzuki 2007: 23–47).
Other accounts within this category treat the Senkaku/Diaoyu
dispute as
a result of competition for locations of strategic and economic
value. At
a time of rising oil prices, this view contends that the island
dispute has

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