Cost-sharing deal to bolster alliance

By Alex Soohoon Lee

South Korea and the United States signed an agreement on cost-sharing for the upkeep of U.S. troops stationed here, March 18. Under the deal, Korea will pay 1.18 trillion won ($1.04 billion) this year, up 13.9 percent from 2019.

The double-digit increase marks the largest hike since the two countries started negotiations for defense cost-sharing for the U.S. Forces Korea (USFK) under the so-called Special Measures Agreement (SMA) in 1991.

A year and three months later, the two allies concluded the 11th SMA negotiations. Since September 2019, Korea and the U.S. had gone through nine rounds of negotiations to determine the amount of Seoul’s contribution to the USFK.

It wasn’t until the seventh negotiation that the two allies made progress on the issue, mostly due to U.S. President Donald Trump doubling down on his “America first” agenda, demanding that Korea pay $5 billion, a fivefold increase from existing contributions, to maintain 28,500-strong U.S. troops in the country.

It was only after the inauguration of President Joe Biden that the two allies actually started making meaningful progress. The Biden administration, announcing “America is back,” immediately executed its plans to re-establish U.S. leadership in the world, and restore the alliance network. It only took 46 days after the inauguration for the allies to conclude the negotiations.

After the agreement, the Ministry of Foreign Affairs announced in a press release that the meeting was an opportunity for the two countries to reaffirm the importance of their alliance and stabilize USFK operation.

The U.S. Department of State also released a statement that the agreement will strengthen the alliance and shared defense. Both confirmed the alliance is the linchpin of peace and prosperity in Northeast Asia.

No matter how successful each party feels about the negotiations, the outcomes of the SMA are as follows:

First of all, the agreement will be effective for six years, from 2020 to 2025, which is certainly a productive outcome. It is by far the longest term considering that most of the previous agreements lasted only two or three years, with the exception of the eighth and the ninth SMAs during the Obama administration, which had been valid for five years.

Now, Korea and the U.S. can concentrate on strengthening their combined defense readiness instead of quarrelling over five individual negotiations over the next five years. A onetime negotiation effective for all immediately is beneficial for the alliance.

Second, the allies agreed to keep 2020’s cost-sharing static, meaning that South Korea will refer to its 2019 contribution, due to the delay in agreement. The ROK will pay 1.04 trillion won ($913.3 million) for 2020 defense costs.

Considering the fact that the 2020 fiscal year had closed, appropriating the cost of the 2020 would have not been possible unless there was mutual trust between the two parties. The allies’ forward thinking had led negotiations in a positive direction.

Moreover, the allies agreed to pay Korean employees who are working for the USFK despite the vacuum created between negotiations. In the future, there won’t be another situation where 4,000 employees are furloughed due to a delay in negotiations.

Lastly, the allies have agreed to link the annual increases in South Korea’s cost-sharing from 2022 to 2025 to the nation’s annual defense budget increase. In the past, there were times when the amount of cost-sharing had been in line with nation’s rate of inflation.

The average inflation rate in the last five years was 1.06 percent while the average increase in defense spending was 6.04 percent. Therefore, Korea should expect to see a much bigger increase than previous agreements. Also, in 2025, the final year of the agreement, the total cost-sharing value is expected to reach as much as 1.5 trillion won. Again, the number turns out to be higher than originally expected.

In a game theory called “battle of the sexes,” a married couple goes out for the weekend. The husband wants to go to a baseball game and the wife wants to go watch a movie. In this setting, if the couple decides to go to the stadium, the payoff for the husband would be higher. If the couple goes to a theater, the wife’s satisfaction rate would be relatively higher.

The same is true for the SMA negotiations. In the end, it is important to note that there is higher payoff for both when they are together than if each goes off in their own direction.

All in all, the 11th SMA, whether it is considered a success or a half-measure in terms of negotiations, is expected to restore the damaged alliance, putting it back on the right track. The two allies show one caveat after smoothly closing the SMA. The Biden administration may ask its allies, including South Korea, to join the U.S.’ efforts to maintain peace and prosperity in the Indo-Pacific region.

There have been growing calls for Korea to join the informal Quadrilateral Security Dialogue, an anti-China coalition better known as the Quad comprising the U.S., Japan, Australia and India. However, Korea is reluctant to accept such calls.

At this critical juncture, Seoul and Washington will have to work together closely to iron out their differences to find a way forward.

Alex Soohoon Lee, Ph.D. in international relations, is an associate research fellow at the Korea Institute for Defense Analyses.