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Mainstream, VOL LVII No 35 August 17, 2019

Tensions Heighten in Japan-South Korea Relations

Monday 19 August 2019

by Rajaram Panda

After winning the elections in the Upper House held on July 21, 2019, though he missed the two-thirds majority or super-majority as it is called in Japan, Prime Minister Abe Shinzo acquired some additional political clout to extricate Japan from the trade war he had launched against his country’s neighbour, South Korea. But how did this sudden trade war start and what could be the deeper reasons behind this unpleasant situation? The confrontation was started in early July by the Abe Government when it restricted exports to South Korea of three materials critical to the manufacture of semiconductors and smartphone displays, thereby threatening to disrupt the tightly-linked supply chains and drive up the prices of everything—from memory chips to iPhones.

The root for the escalation, stemming from historical issues, meant placing export controls on the exports of fluorinated polyamids, photoresists, and hydrogen fluoride—chemical materials used to make computer chips, display panels, and other high-tech products. Japan accounts for nearly 100 per cent of fluorinated polyimide and photoresist, and about 70 per cent of hydrogen fluoride. This is technically not a blanket prohibition, but a requirement that Japanese companies apply for licenses for each of these three chemical materials when they sell to South Korea, a requirement that gives the Japanese Government the bureaucratic room to delay for up to 90 days. If the Japanese Government does not grant export permissions, this can be deemed as de facto embargo.

Both Japan and South Korea continue to suffer from the shadow of history. With either side taking rigid stance, no easy solution seems on the horizon. In the latest Japanese retaliatory action lies the court ruling in South Korea ordering Japanese firms to compensate the victims of wartime forced labour. Questions are raised about Abe’s decision as he has been a votary of strengthening the international trade order. Bloomberg in an editorial wrote that Abe’s decision is “foolish and hopeless”. It felt that through export curbs, Japanese suppliers will lose the market share as well as their reputation for reliability and therefore urged Japan to lift the export controls.

As the diplomatic row deepened after the South Korean court ruling over compensation for wartime forced labour, Japan’s Foreign Minister Taro Kono summoned South Korea’s ambassador Nam Gwan-pyo after the expiry of the midline deadline set by Japan for South Korea to accept third-party arbitration of the forced labour dispute. Japan contends that South Korea’s ruling by its Supreme Court ordering two Japanese firms to compensate the wartime workers is improper and that Seoul must take swift measures to correct this mistake. According to Japan, the issue of compensation was settled under a 1965 treaty which established diplomatic relations between the two nations post-World War II. In June 2019, Japan rejected a South Korean proposal to form a joint fund with Japan to compensate South Korean plaintiffs.

Compensation of South Koreans for labour during Japan’s 1910-1945 occupation of the Korean peninsula has soured relations between the United States’ closest Asian allies. With the dispute over compensation assuming the dimension of trade frictions, talks of taking up the dispute by either side to the International Court of Justice (ICJ) are surfacing.

Trade row escalates tensions

Japan’s Ministry of Economy, Trade and Industry issued a statement that Tokyo “will apply updated licensing policies and procedures on the export and transfer of controlled items and their relevant technologies to (South Korea).” The statement further stated: “Through careful consideration among the relevant ministries in Japan, the Government of Japan cannot help but state that the Japan-(South Korea) relationship of trust including in the field of export control and regulation has been significantly undermined”. Additionally, Tokyo removed South Korea from the list of “white countries”—countries that Japan deems to have trustworthy export control systems.

Responding to reactions from South Korea to its decision to implement export curbs, resulting in widespread boycott of Japanese products and services in South Korea, from beer to clothes, disrupting the ongoing worst economic climate in a decade, Japan blamed South Korea’s “deficiencies” in its export control system and not in reactions to the labourers’ dispute, which South Korea rejected as “unjust economic retaliation”. South Korea’s Trade Ministry strongly reacted, saying that Japan’s plan to remove South Korea from its “white list” of countries with minimum trade restrictions should be based on “clear evidence and facts”.

There is a fear that Japanese curbs could have grave impact on not only the economies in both the countries, but on the global supply chain. South Korea tried to bring international pressure to bear on Japan by airing its complaint at the World Trade Organisation (WTO) but that did not cut any ice with the Japanese as the two allies of the US lobby traded accusations at each other. Japanese ambassador Junichi Ihara in Seoul told the WTO meeting that the change in trade procedures was Japan’s prerogative, was nothing unusual, and reflected Seoul’s failure to maintain dialogue on the mutual streamlining of trade procedures. The ambassador further observed that it was also based on national security concerns, following “some cases of inappropriate export” to South Korea.

Japan is cognisant of the fact that the national security claim could make it exempt from the rules of the WTO and that Seoul’s complaint would stand on weak ground.

South Korea had brought the dispute to the WTO, hoping to rally international opposition to Japan’s move but several countries preferred not to get involved in the dispute between two nations with an intertwined and complex history. The situation could escalate further, with the two governments engaging “in a tit-for-tat exchange of retaliatory measures for at least several months that further sours bilateral relations.”

The tensions between the two Asian rivals are not recent. This stems from more than six decades of resentment from South Korea toward Japan. During the Japanese occupation of the Korean Peninsula from 1910 to 1945, many Korean women were forced into sex work in military brothels. It is unfortunate that when the world’s two largest economies, the US and China, continue hashing out their wide-ranging tariff battle, two of Asia’s major economic players appear to be nearing their own trade war over political disputes. In the present scenario, there does not seem to be a way out to resolve the dispute.

GSOMIA under threat 

While Kono maintained that all compensations were settled in the 1965 bilateral agreement and therefore South Korea should work on rectifying the breach on international law, Kang insisted that it is not fair that Japan decided to remove South Korea from the list of countries eligible for preferential treatment. She also hinted that South Korea may potentially scrap the General Security of Military Information Agreement or GSOMIA, if Japan does not reverse the decision. In the present scenario, there does not seem to be a way out to resolve the dispute. That is unwelcome for Asian peace.

The Japan-South Korea tensions presented a new dilemma for the US. President Trump dispatched his Defence Secretary, Mark Esperon, on August 8 to have a discussion with his Korean counterpart, Jeong Kyeong-doo, on a series of regional challenges ranging from the bitter trade row between Seoul and Tokyo to the cost of US troops stationed in South Korea. This was a challenge itself for Esper as this was his first international trip since being confirmed as the Defence Secretary.

Though Jeong Kyeong-doo stressed that Japan’s export restrictions against South Korea were “causing adverse effects on South Korea-Japan relations and security cooperation among South Korea, the US and Japan”, the threat of exploring all options, including scrapping the intelligence sharing pact was the most worrying for Esper.

GSOMIA facilitates three-way intelligence gathering with Washington, which is crucial in fending off North Korea’s nuclear and missile threats. The deal is automatically renewed annually on August 24. Trump also has been putting pressure on South Korea to share greater burden for the upkeep of the 28,500 US troops in South Korea. The available report says that South Korea agreed to “pay a lot more” but the figure remains in the realm of conjecture at the moment. Trump had claimed that Korea agreed to pay “substantially more money” to the US, labelling South Korea as a “very wealthy nation”. Since Esper’s travel also took him to Australia, Japan and Mongolia, the regional security issue, including that of North Korea’s missile launches, figured prominently in the discussions.

Notwithstanding the North Korean challenge, there are compelling reasons for the US to worry if GSOMIA is scrapped because of bilateral issues between Japan and South Korea, which is why Esper urged Abe Shinzo to maintain GSOMIA as it is the key to the three countries to prevent the threats from North Korea. Esper also stressed the importance of the agreement in his meeting with Japanese Defense Minister Takeshi Iwaya.

The subject is no longer confined to the Japan-South Korea issue. This and related issues are all potential tinder boxes that can fuel uncomfortable tensions in the Korean-US alliance, owing to their connotations of the strategic competition between Beijing and Washington as well as the increasing friction between Tokyo and Seoul. North Korea is aware of these complexities and vulnerabilities and is trying to drive a wedge in the alliances with a series of short-ranged missile launches. Though Trump is pushing his allies to take cognisance of such complexities, the underpinning factor is how to protect the alliance relationship which has become thornier than ever.

In any alliance relationship, both parties share the benefits accruing from a shared threat. “Even in an asymmetrical alliance with a significant imbalance of power, a unilateral dependence or sacrifice must not be accepted. An alliance can stay healthy only when the parties involved work together on terms that both willingly agree to. We must study the requests from Washington carefully and consider our own national interests and the shared interests for the two countries, with the contributions we make to this alliance thoroughly taken into account.” This was the observation of an article in a South Korean daily.

Comfort women issue still alive

The mutual distrust between the two Asian nations culminating in the recent flare-up of tensions stems from more than six decades of resentment from South Korea toward Japan. When Japan colonised the Korean Peninsula in 1910 and kept it under its control until its defeat in World War II in 1945, there are allegations that it drafted many Korean women to provide sex in military brothels. Commonly termed as “comfort women”, a euphemism for all the women forced into sex work in the region during World War II, the issue continues to simmer frequently. When Korea installed a statue of a “comfort woman” in front of the Japanese embassy in Seoul as a token of protest recently, it marked a sour point in bilateral ties. Japan protested that the statue be removed. There was public support for the statue with possibly government endorsement.

When a deal was reached between the two countries in 2015 on this issue, Japan apologised to the women as a part of this and provided a 1 billion yen, approximately $ 9.4 million, fund to help the surviving “comfort women”. Advocacy groups for “comfort women” in Korea criticised the fund, compelling the South Korean Government to dissolve the Japanese Government-funded Reconciliation and Healing Foundation created to distribute the $ 9.4 million that Japan paid as part of the 2015 comfort women deal ignoring warnings from Japan that such action could damage bilateral ties.

When the Moon Administration formally shuttered the Foundation on July 4 despite Japanese objections, three-quarters of the sex slaves, who were alive at the time the deal was reached, had already accepted money from the Foundation, as did six dozen families of the victims. Though the Moon Administration denied scrapping the deal, closing the Foundation stoked tensions with Japan.

Trade stand-off

When Tokyo’s changes to its approach to South Korean trade went into effect, Japanese exporters were required to apply for licenses for some individual shipments to South Korea. That included exports of chemicals mostly used for making refrigerants, pharmaceutical inter-mediates, metal manufacturing, and sometimes semi-conductor preparations. This implied that the process of exporting these goods from Japan to South Korea is slow and complicated too. Earlier, bulk licenses for individual shipments used to cover three years of shipments. Hereafter, applying for an export license for individual shipments can take 90 days or so to complete, with no guarantee of success, thus creating more uncertainty and potential costs. Things could get more complicated when Japan’s list of “white countries” goes into effect in late August 2019.

For now there is a group of 27 white countries that Japan considers have strict export control regimes and holds regular discussions on such matters with them. Such discussions with white countries to handle such items are held at least once in every two years. Japan and South Korea had only one such exchange since 2016, and none since Moon took office in May 2017. This is a clear indication that mutual trust during Moon’s regime has broken down.

Implications of the skirmish

As expected, the Abe Administration’s targeting South Korean tech industries, such as smart phones and semi-conductors, incited negative reactions among citizens of the two countries. The implications of this would mean that citizens in South Korea would boycott products from Japan, which is what has already happened. Even the tourist industry is hit with less number of people visiting either country. Abe was not willing to appear weak ahead of the Upper House elections on July 21, and Moon now geared up for preparations to National Assembly elections in April 2020. So, neither side seems willing to back down. With neither side prepared to seek a face-saving way to prevent the outbreak of a debilitating full-blown trade war if tension escalates, both sides would find difficult to seek cooperation in other issues such as North Korea and other regional questions.

Driving factor behind trade restrictions

The export controls are a policy of last resort from a frustrated Tokyo. Writing for the Diplomat, Mina Pollmann opines that Japan, that championed free trade ideology and liberalised trade and even picked up the baton of Trans-Pacific Partnership dropped by the Trump Administration by going for TPP-II, is now abandoning the same principles and hit the headlines by escalating a trade dispute with South Korea. That Abe’s trade strategy towards South Korea—despite that it is its third largest export destination and fourth largest import origin—smacks of irrationality to some observers.

Even when the restrictions affected the global semiconductor industry and hit South Korea’s Samsung and SK Hynix, Japan took refuge on the pretext of national security, accusing South Korea of not properly controlling these sensitive materials, implying that Seoul allows some of these sensitive materials with military applications to reach North Korea. Viewed objectively, Japan’s national security explanation alone stands on a weak foundation for either the timing or the severity of Japan’s trade restrictions. It seems abundantly clear that Japan’s trade restrictions for all intents and purposes are in retaliation for South Korea’s high court ruling on the issue of compensation for forced labour during the colonial period.

Japan often invokes the 1965 agreement that normalised relations between the former coloniser and former colony. At that time, dictator Park Chung-hee accepted Japanese aid and loans to spur South Korea’s rapid industrialisation and the matter of individual compensation was closed. That is what Japan is convinced about.

The Japanese policy looks flawed from a different count. Not only does it go against free trade from which it has immensely benefited in the past, it could temporarily sabotage its own economic well-being as well. Though Japan denies a direct link between the trade dispute and the South Korean court verdict, an objective observer of the dispute would see a direct connection between the two. As Brad Glosserman, Deputy Director of and Visiting Professor at the Tama University Center for Rule-Making Strategies, remarks, “For a country that is so dependent on free and open trade to do something like this speaks to the level of frustration that Japan feels, and that Japan does not have many other options. Japan is really just trying to signal their resolve—the Japanese nation’s willingness to pay a price—to get this addressed.”

In this present scenario, has South Korea any option? There are some that the Moon Administration could possibly consider. Seoul might consider not using historical issues as a contemporary issue. Here probably Moon might consider India’s stand on maintaining ties with Britain despite the bitter colonial rule during which Indians suffered a lot and draw some lesson. Moon also needs to respect the binding nature of the 1965 normalisation agreement. Moon also could keep in mind South Korea’s national interest while interpreting/accepting the court verdict. Taking the issue to the WTO could further complicate the matter and therefore best be avoided. Though none would be easy for Moon, each has merit. From Japan’s side, despite the fact that hardliners would argue for a tough stance, the conservative Abe has striven hard not to derail the burgeoning bilateral ties.

In a conciliatory gesture, the Japanese Government granted approval on August 8 for three shipments to South Korea of some of the three items used to produce semiconductors, the first such authorisation since export controls on the items were tightened on July 4. The Economic Ministry, Trade and Industry Ministry determined after confirming the export destination that the materials would not be diverted for military use. Seoul had criticised the measure to restrict export, saying that it could have a global impact. Japan had clarified that exports will be approved if screenings find no problem. The relaxation was also intended to send a message that the export controls are not implemented in an arbitrary manner for legitimate trade.

There is yet another view behind Japan’s move to restrict exports. This view suggests that on the alibi of national security, Japan hoped to get concessions on forced labour lawsuits by squeezing Korea’s electronics industry. Seoul lost no time in calling Japan’s move as “economic retaliation”.

Despite hardening of public opinion in either country, both cannot do without the other. The business communities in either country are usually a force for calm. A recent New York Times article compared Japan’s trade restrictions to Trump’s retaliatory use of tariffs. This provoked ire in Tokyo. However, Abe’s current policy approach of “weaponising trade as a way of settling unrelated disputes”, rather than upholding “a free, fair, and non-discriminatory” trade environment, creates more critics than admirers. The calming influence of the businesses in South Korea can take a hit when the Moon Administration urges them to prepare to make do without Japan, if necessary.

Way out?

As its two major allies in Asia are in conflict, the US is worried at this undesirable development and urged both Japan and South Korea to find ways to resolve issues. During a three-way meeting in Bangkok, the US Secretary of State Mike Pompeo urged Japan’s Foreign Minister, Taro Kono, and South Korean Foreign Minister, Kang Kyung-wha, to end the dispute as soon as possible. What transpired was that both sides remained on different tracks.

Though the US is worried that its strategic interests in the region will suffer if the economic dispute spills over into security areas, it is unprepared to intervene directly. The US feels that each is partly responsible for the current mess. Pompeo’s initial move to draw both sides closer in Bangkok showed no positive sign. Though US mediation is no silver bullet, it may still help the two resolve their conflict, provided that either side shows some flexibility, or else trilateral cooperation cannot make any headway. It may be recalled that in 2014 and 2015, after nearly three years of no meetings between the leaders of Japan and South Korea, the Obama Administration worked behind the scenes to encourage the talks that produced the historic but controversial deal on the comfort women issue.

Both sides need to show political will if any diplomatic solution can be expected to end the current mess in Japan-South Korea relations.

A peaceful Northeast Asia would serve the interests of all stakeholders and the onus lies in each of them to do their bit. Hurting Korean companies by certain policies by Japan shall also adversely affect the Japanese companies, whereas a peaceful environment will create new oppor-tunities in the market. This is the universal truth. Both Japan and South Korea have reaped economic dividends in the post-war years by opting for open economies. It is time that both see the negative fallouts of their current economic policies and therefore undertake corrective measures to restore balance and create a win-win proposition for both.

Former ICCR Chair at Reitaku University, Japan, Dr Rajaram Panda is currently a Lok Sabha Research Fellow in the Parliament of India.

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