SEOUL, Aug. 3 (Korea Bizwire) — The already frayed relations between South Korea and Japan will likely plunge further into a fresh downward spiral as a local court is expected to kick off a procedure to sell off assets of a Japanese firm to compensate victims of wartime forced labor.
Starting midnight Tuesday, the Pohang branch of the Daegu District Court will be able to start the procedure to auction off some of Nippon Steel Corp.’s stake in a joint venture company established with POSCO so as to cash them out for compensating forced labor victims.
Japan has warned of strong countermeasures if the procedure for sales goes ahead, with Chief Cabinet Secretary Yoshihide Suga saying Saturday that Tokyo is looking at “all available measures” and “has a clear direction about it.”
“It’s the game of chicken all over again,” Lee Won-duk, a professor at Kookmin University, said. “The two countries are fighting for their pride even though this is a potentially explosive matter that can further aggravate the ties,” he said.
The case grew out of the South Korean Supreme Court’s landmark ruling in October 2018 that ordered Japan’s Nippon Steel to pay four forced labor victims 100 million won each in compensation for their suffering. It was the first such court ruling.
Japan strongly protested the verdict, claiming that all reparation issues stemming from its 1910-45 colonial occupation of Korea were settled under a 1965 normalization pact in which the South received grants and economic cooperation loans.
The plaintiffs have since asked the Pohang court to seize Nippon Steel’s shares in a step to recover the damages.
The court granted the request in January last year and sent a notice of the seizure decision to Japan so that it could be formally delivered to the company, but Tokyo refused to accept the document.
After 10 months of waiting, the court published the notice on its website in early June, setting in motion a legal procedure, known as “service by public notice,” which is usually taken when such notices are unable to be delivered, including when the whereabouts of recipients are unknown.
After two months, the notice is considered to have been delivered, and that deadline is Tuesday.
Although some legal technicalities remain, it’s only a matter of time for the asset sales to take place and evolve into what would be yet another fresh source of tensions in their bilateral relations, experts said.
The assets subject to sales are the 30 percent stake held by Nippon Steel, formally Nippon Steel & Sumitomo Metal Corp. at the time of the Supreme Court decision, in PNR, a joint venture company with South Korea’s POSCO, worth about 400 million won (US$335,000) by face value.
Should the court order the asset sales, there is little doubt that Japan will take retaliatory steps against South Korea, on top of the export curbs and removal of Seoul from its preferred trade partners’ list it imposed last year in anger over the South Korean court ruling.
Among the measures that Japan could take against South Korea in addition to those restrictions is a further tightening of export control measures on industrial materials that Korea highly relies on Japan for.
In July last year, Tokyo slapped export controls on three display materials vital to Seoul’s tech firms.
“Some say that South Korea has fared well in the face of Japan’s export curbs. But we cannot deny that when it comes to industrial competitiveness, it’s still asymmetrical,” Lee said.
“If Japan really ‘turns off the tap’ for our exporters, our industries are going to suffer.”
Experts also point to possible financial restrictions in relation to some $42 billion that Japanese banks have invested in South Korean companies, an option that observers say would likely yield a limited impact.
Other measures in theory include raising tariffs and some sort of visa restrictions.
On Monday, the foreign ministry in Seoul said it is bracing for the possibility of Japan taking retaliatory steps following the court order to sell off the assets.
South Korea will certainly hit back at Japan in its own way, and reactivating its earlier decision to terminate a bilateral military intelligence-sharing pact with Tokyo is among the options it may be weighing, according to Nam Chang-hee, a professor at Inha University.
Later this month, Seoul will have to decide whether to renew a military intelligence-sharing pact with Tokyo it almost scrapped last year in protest at Japan’s export restrictions.
In late November, Seoul decided to suspend its decision to terminate the General Security of Military Information Agreement (GSOMIA) at the last minute after the two countries agreed to resolve the matter through diplomacy.
The dispute over GSOMIA had raised concern from the United States as its strategic interest lies in maintaining a stable trilateral security partnership with its two Asian allies.
“Nevertheless, the two countries intend to keep the situation under control, as they have enough of their own pressing political issues to deal with,” Nam said.
The Moon Jae-in government is on a mission to broker another summit between U.S. President Donald Trump and North Korean leader Kim Jong-un to accomplish its signature engagement policy with Pyongyang.
The Shinzo Abe government appears to be struggling with the spread of the coronavirus pandemic, for which Abe has been under scrutiny over his government’s mishandling of the outbreak.
“I believe that both sides intend to maintain the status quo, unless one of the two comes with something strong to provoke the other,” Nam said.
“Both countries know that, if they do (terminate GSOMIA), it would put them at odds with Washington, and they don’t want to do that after what they went through last year.”
As the court procedure for asset sales is to effectively begin, chances for diplomatic negotiations will be “very, very low,” Yang of Sungkonghoe University said.
“We could say that the government’s focus, probably for both sides, has already moved on to devising ways to retaliate after the court orders the sales, rather than diplomatic engagement,” he said.