Japan warns of response if South Korean court seizes Nippon assets for forced labour compensation

Japan warned it would respond if South Korea seized the assets of a Japanese company to pay compensation to a group of Korean wartime forced labourers, Deputy Prime Minister Taro Aso said on Tuesday, describing such a move as being in breach of international law.

"If [Japan's] assets were confiscated ... we would have no choice but to respond, so we must avoid that from happening," Aso told a regular news conference, after the expiry of a notification period following which a South Korean court can begin the process of liquidating assets of Nippon Steel valued at about 400 million won (US$335,000).

Chief Cabinet Secretary Yoshihide Suga told reporters on Tuesday that Tokyo will "continue to firmly handle" the matter while keeping "a range of options" in mind.

Japanese broadcaster NHK reported that Nippon would appeal the seizure of its assets, which comprise its 30 per cent stake in a joint venture with South Korean steelmaker Posco. No money is expected to move immediately as it will take several months for procedures to be completed.

The development is set to further strain ties between Seoul and Tokyo, complicating the situation for US President Donald Trump as he seeks their help in Washington's efforts to counter China.

Relations between Japan and South Korea have hit new lows over the compensation and other economic and territorial disputes.

Analysts say while it is likely both governments will again call for discussions, the countries' leaders will lose a good deal of domestic public support if they are seen to be giving ground - something neither South Korea's Moon Jae-in nor Japan's Shinzo Abe can afford at the moment.

Nippon Steel - which was until last year known as Nippon Steel and Sumitomo Metal Corporation - lost a compensation suit in October 2018 to four plaintiffs who said they had been forced to work for a predecessor of the company when the Korean peninsula was under Japanese colonial rule. Japan held the peninsula between 1910 and 1945.

The company was ordered to pay each claimant 100 million won (US$83,836) but the Japanese government is understood to have told Nippon Steel to refuse to pay the amount, on the grounds that all claims for redress during the colonial period were settled under the terms of the 1965 treaty that established diplomatic relations between the two nations. That treaty was accompanied by US$300 million in grants to the government in Seoul, money that was tacitly seen as compensation.

Tokyo's position was communicated to the South Korean government, which has attempted to distance itself from the suit on the grounds that it cannot interfere in judicial proceedings or rulings.

A number of other Japanese companies will be watching the proceedings carefully as there are at least 20 similar compensation suits pending in South Korean courts, with around 1,300 plaintiffs demanding redress for their labour for nearly 70 Japanese firms, including Mitsubishi Heavy Industries.

"For both sides, it is going to be very difficult to make any sort of meaningful compromise," said Go Ito, a professor of international relations at Tokyo's Meiji University.

"The Japanese side is very unhappy with South Korea's logic that individual compensation was not covered under the 1965 agreement and insists this is undermining relations that have been cooperative and generally good for several decades now," he said. "The feeling is that relations have regressed dramatically under the Moon administration."

Japanese Prime Minister Shinzo Abe (left) and South Korean President Moon Jae-in. Photo: Kyodo alt=Japanese Prime Minister Shinzo Abe (left) and South Korean President Moon Jae-in. Photo: Kyodo

Nevertheless, Tokyo has had time to prepare for retaliatory measures and has telegraphed that to Seoul well in advance of the ruling, with Japanese foreign minister Toshimitsu Motegi telling his South Korean counterpart Kang Kyung-wha that selling Nippon Steel's assets would have serious repercussions.

Ito said Japan could impose a ban on South Korean travellers, although that would arguably hurt the domestic travel industry and is largely moot as a result of the Covid-19 pandemic. Alternatively, administrative measures could be imposed on Korean firms with a presence in Japan, such as stepped-up inspections and other moves that would hinder their business here.

Other retaliatory measures might include increased tariffs and financial restrictions on the estimated US$42 billion that Japanese banks have invested in South Korean companies.

Stephen Nagy, an associate professor of international relations at Tokyo's International Christian University, said Japan might move to widen the restrictions imposed on chemical or component exports that were key to South Korean industry.

That tactic had a degree of success last year, when exports of three chemicals were restricted, disrupting the Korean microchip sector. Tokyo also took South Korea off its "white list" of preferred trade partners.

"Japan can also increase the frequency and depth of their inspections of products being exported to Korea, slowing down trade in red tape," Nagy said. "I sense that in Japan, the hardliners in the Liberal Democratic Party will be calling for Abe to take a far firmer line on Korea and I think the public will support that.

"I think there is real 'apology fatigue' towards South Korea in general and the Moon administration."

The Trump administration has been hesitant to step in and ease tensions, but last year, it pressured Seoul to make a last-minute pivot to save an intelligence sharing pact with Tokyo designed to demonstrate the neighbours' ability to cooperate independently from Washington to counter shared threats including China and North Korea.

Analysts say the renewed tensions between Seoul and Tokyo could hurt the US on the economic front, given that the Trump administration has talked about bringing supply chains home from China, and even publicly floated the need for a group of friendly nations in Asia that could help produce essential goods, seeking assistance from the likes of Japan, South Korea and others.

The tension between Tokyo and Seoul, however, could benefit China, according to Zhao Tong, a senior fellow at the Carnegie Tsinghua Centre in Beijing.

"The growing gap between Japan and South Korea may help China maintain a good relationship with South Korea due to their shared historical grievances toward Japan and can help ensure that a US-ROK-Japan trilateral security alliance will never become real," Zhao told Bloomberg.

Additional reporting by Reuters and Bloomberg

This article originally appeared on the South China Morning Post (SCMP).

Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.