The Council welcomed the Commission's Communication of 9 December 1998 European Union policy towards the Republic of Korea, and endorsed the broad lines of its analysis and recommendations concerning developments in the Republic of Korea, the Democratic People's Republic of Korea (DPRK) and more widely on the Korean Peninsula.

The Council agreed on the main aims of the European Union's Korea policy as follows:

I. Securing entry into force of the Framework Agreement on Trade and Co-operation with the Republic of Korea in the near future;

II. Updating economic relations with the Republic of Korea to take account of the financial crisis and subsequent reforms initiated by President Kim Dae-jung;

III. Enhancing relations with the Republic of Korea in other areas;

IV. Enhancing support for international efforts to maintain stability and find a lasting peace settlement on the Korean Peninsula;

V. Continuing to press DPRK for more responsible behaviour, particularly on security issues and human rights;

VI. Reviewing bilateral relations in the light of DPRK's response to the policy of engagement.

I) Securing entry into force of the framework agreement on trade and co-operation with the Republic of Korea in the near future

The EU reaffirms the central role of the Framework Agreement on Trade and Co-operation and of the Joint Declaration on Political Dialogue, which were signed on 28 October 1996, in governing bilateral relations with the Republic of Korea. It recalls the importance of ensuring the Framework Agreement's entry into force in the near future.

II) Updating economic relations with the Republic of Korea to take account of the financial crisis and subsequent reforms initiated by President Kim Dae-Jung

The EU sees the Republic of Korea as an important element in the international economic order. It therefore reacted quickly, together with the international community, to the outbreak of the financial crisis and, under the IMF's guidance, EU member states contributed very substantially to the largest financial support package ever granted to an individual country, totalling US $ 58 billion.

In return, the new Korean government has initiated comprehensive reform measures, designed to make the country less vulnerable to crises and more able to compete. The consolidation policy has achieved unmistakable initial success, but full implementation of the reform measures must be assured in order to reach the objective of a renewed powerful economic upturn. The EU expects the government of the Republic of Korea to continue to view the crisis as an opportunity to be seized for eliminating macro- and micro-economic deficits and structural imbalances. Only in this way can the foundation of stable, lasting recovery be laid.

Furthermore, the EU has supported the Republic of Korea's recovery bilaterally, in particular by keeping its markets open, and by various actions in the ASEM framework. Its companies have also helped underpin the recovery by stepping up investment and, in the case of the banking sector, by participating constructively in negotiations on the rescheduling of commercial debt.

The EU should remain firm in supporting the Republic of Korea's economic reform process, which must continue to be based on transparency, non-discrimination, legal predictability, market principles and the opening of markets and the removal of existing barriers to trade and investment.

Welcome steps have been taken to strengthen financial-sector regulation, improve corporate governance, facilitate foreign investment and restructure banks and conglomerates. The rehabilitation of the finance and banking sector which has been initiated must be pursued. In the process, the financing needs of foreign banks must also be given due consideration. Special attention should be given to the needs of SMEs for bank loans.

However, further efforts are needed in many areas to deliver a truly open and transparent market-based system. Also, several measures such as chaebol business swaps still need to prove that they can contribute to solving the economy's underlying structural deficiencies.

Proceeding with the reorganisation of the business environment is still a priority. Transparency, especially in large firms, is still inadequate and must be further improved. The admission of holding companies and the introduction of international accounting systems must be put into practice as a matter of urgency and become part of routine procedure.

In addition, a more balanced industrial structure would reduce the chaebol's overwhelming market and financial dominance. In this respect the government should do more to encourage the development of small and medium-sized enterprises and strengthen domestic competition policy.

The EU also welcomes the endeavours of the new leadership to open up the Republic of Korea further to international business co-operation. Foreign firms can make an important contribution to the country's economic recovery. Further improvements for firms wishing to operate in the Korean market now seem possible and advisable. One such improvement is the elimination of tax disadvantages vis-à-vis domestic companies. Another one, which is just as important, is observance of international rules on the protection of intellectual property.

The EU will remain extremely vigilant in the face of continuing suspicions of non-market behaviour by certain economic operators, such as in the shipbuilding sector. So as to further international co-operation in the shipbuilding sector, the EU invites Korea to co-operate with other shipbuilding nations to solve the problems related to capacity as well as falling prices and weak demand in this sector.

Membership of the OECD is an acknowledgement of what has been achieved. However, it also involves specific expectations. They focus on the observance of internationally accepted patterns of behaviour. In this connection, the EU welcomes the fact that the new Korean leadership has declared its opposition to trade-restrictive behaviour inherent in such activities as the frugality campaign. Such spectres of an outdated attitude in the age of globalisation should not be allowed to return.

The EU welcomes the Republic of Korea's formal support for a new round of trade liberalisation within the WTO. The two sides should co-operate closely to secure a balanced and comprehensive strengthening of the multilateral trading system.

The EU's bilateral economic co-operation activities with the Republic of Korea should be stepped up to better reflect the importance of the relationship. This should take place as soon as the Framework Agreement on Trade and Co-operation enters into force.

III) Enhancing relations with the Republic of Korea in other areas

Bilateral ties between the EU and the Republic of Korea have been complemented by the success of the ASEM process in boosting economic, political and cultural ties between Europe and Asia.

The EU welcomes the Republic of Korea's active and constructive role in ASEM to date and looks forward to the third Asia-Europe Meeting (ASEM III) in Seoul in October 2000.

The EU welcomes the development of its political dialogue with the Republic of Korea, based on the Joint Declaration of October 1996, considers that the dialogue should be broadened and would welcome the holding of a first summit meeting, as provided for in the Joint Declaration.

The political dialogue should focus on operational issues and issues of mutual interest.

The EU welcomes the fact that the Republic of Korea's record on human rights has improved considerably since military rule ended, although there is still scope for improvement. The EU would welcome the release of remaining political prisoners, the abolition of the death penalty and establishment of a truly independent national Human Rights Commission with a broad mandate.

IV) Enhancing EU support for international efforts to maintain stability and find a lasting peace settlement on the Korean Peninsula

The EU has welcomed and supported the engagement policy of the Republic of Korea towards the DPRK. It calls upon the DPRK to respond favourably and thus contribute to reducing tensions between the two Koreas. The EU is convinced that direct dialogue between the two Koreas is essential for lasting peace, and therefore urges both sides to continue their dialogue, to drop all preconditions, and to consider raising the dialogue to the highest level.

The EU has supported in various ways the ongoing international efforts to maintain stability and find a lasting peace settlement on the Korean Peninsula.

The EU is a firm supporter of the Four-Party Talks between the two Koreas, China and the United States, to replace the armistice on the Peninsula with a permanent peace settlement.

The EU supports the US-DPRK Agreed Framework of 1994 and is a full and active member of the Executive Board of the Korean Peninsula Energy Development Organisation (KEDO), whose work improves regional stability and helps to uphold the international nuclear non-proliferation regime. According to the agreement between Euratom and KEDO, the EU is contributing 75 mill. EURO to the KEDO budget over a period of five years. It will in due time consider terms for continued participation in KEDO after the period covered by its current membership agreement.

Since 1995, the EU has consistently provided assistance, including significant quantities of food aid, to alleviate DPRK's ongoing food shortages and associated humanitarian problems. Total EU aid over this period, including deliveries planned for 1999, amounts to approximately 177 million.

Building on previous years' operations, this year's aid comprises enhanced monitoring mechanisms and support for agricultural rehabilitation, intended to promote market-type developments through innovative agricultural pilot projects.

Although they were exacerbated by natural disasters, the DPRK's current acute difficulties are principally structural in nature and derived from the country's economic and agricultural policies. A lasting solution to end DPRK's dependence on foreign food aid can therefore only be found through forward-thinking and far-reaching adjustment of the domestic policy framework. The EU would be willing to consider ways of co-operating with the DPRK authorities in this regard, if the authorities clearly demonstrate their intention to pursue necessary comprehensive reforms, more sustainable policies and good governance.

The EU has noted with interest the recent enhanced co-ordination by the United States, the Republic of Korea, and Japan of their respective policies towards the DPRK. Building on its contribution to date to the goal of promoting peace and stability on the Korean Peninsula, the EU stands ready to further contribute to a co-ordinated and comprehensive international approach towards the DPRK.

V) Continuing to convince DPRK to take a more responsible role, particularly on security issues and human rights

The EU invites the DPRK to take steps to reduce regional tensions, thus creating a more stable security climate where genuine progress towards a lasting peace would be possible.

The EU calls upon the DPRK to fully comply with its commitments under the Non Proliferation Treaty (NPT) and to sign and to ratify the Comprehensive Test Ban Treaty (CTBT) without delay, especially as the DPRK is one of the states whose ratification is needed for the CTBT to enter into force. The EU also calls the DPRK to join other relevant non-proliferation regimes, including the CWC.

In this connection, the EU urges the DPRK to discontinue missile activities, such as flight-testing, which undermine regional stability. The EU is equally concerned about reported DPRK exports of missiles and missile technology to unstable and volatile regions of the world and urges the DPRK to discontinue these exports.

The EU is also deeply concerned about serious human rights violations in DPRK, in particular with regard to political prisoners, the absence of the rule of law, and the non-cooperation of the authorities with international human rights mechanisms. The EU regrets that the DPRK persistently hampers NGO activities in the field of human rights. The EU strongly urges the government of the DPRK to respect human rights and to fulfil its obligations under international law. DPRK's announced withdrawal from the International Covenant on Civil and Political Rights is legally void and exacerbates international mistrust of the DPRK.

VI) Reviewing bilateral relations in the light of DPRK's response to the policy of engagement

The EU conducted a first round of political dialogue with the DPRK in December 1998. The EU has previously stated its willingness to hold a second such meeting later this year, depending on progress on the Korean Peninsula.

The EU has noted DPRK's repeated request for a liaison office to be established in Brussels. This request will be considered in the light of identifiable progress in the political dialogue.

To the extent that the various concerns which it has expressed to the DPRK are addressed over time, the EU would expect bilateral relations to be progressively improved. Any economic or political benefits which the EU might extend in this context will be related to progress from the DPRK in the various areas of EU concern.