Japan Initiates Economic Retaliation against South Korea

Posted on 02 August 2019

Source: Business Korea

The Sankei Shimbun reported on June 30 that the Japanese government would restrict exports of three chemical materials to South Korea starting from July 4 in response to the South Korean Supreme Court’s ruling regarding compensation for forced labor victims during Japanese colonial rule.

The three materials are fluorine polyimide as a liquid crystal display component for use in TVs and smartphones, photoresist and hydrogen fluoride (etching gas) necessary for manufacturing of semiconductors. Japan currently accounts for approximately 90 percent of the global supply of each of the three materials.

When it comes to the compensation for the victims, the South Korean Supreme Court ruled in May 2012 that individual claims can be exercised regardless of the comfort women agreement between South Korea and Japan, and the Korean government the court confirmed the ruling in October 2018. Then, the Japanese government demanded diplomatic negotiations, but the South Korean government argued that it should respect the ruling in accordance with the principle of separation of powers. And eight months of confrontation led to Japan’s economic retaliation.

In reference to controversy over the effects of the international treaty between South Korea and japan, which are the core of Korea-Japan conflicts, on forced labors’ individual claims, President Moon Jae-in, who was a senior presidential adviser for civil affairs for then President Roh Moo-hyun in 2005, took part in the ‘Private-Public Joint Committee to deal with the Disclosure of Documents Related to Diplomatic Ties between Korea and Japan’ as a representative from the government. “It is necessary to examine what legal principles can eliminate individual claims,” Moon said at the time. The committee co-chaired by then Prime Minister Lee Hae-chan (currently the leader of the ruling Democratic Party) said in August of the same year, "The right to claim damages for anti-human torts or illegal acts directly linked to Japan’s colonial rule of Korea cannot be interpreted as a case addressed by the two parties’ agreement on claims.”

It means the committee acknowledged claims for compensations regarding Japanese military comfort women, an anti-human and illegal act which involved the Japanese government and Koreans in Sakhalin and Korean atomic bomb victims. However, it concluded that individual claims of Korea victims of forced labor were included in the agreement. "US$300 million which Korea received from Japan through the claim agreement is deemed to include claims that the Korean government has as a nation such as private property rights and bonds to be paid by the Japanese Government-General of Korea and compensations for forced labor victims. Since then, the Lee Myung-bak Administration and the Park Geun-hye Administration had maintained this position. The Korean and Japanese judiciary made similar rulings.

However, the Supreme Court of Korea said in 2012, “Nippon Steel & Sumitomo Metal Corp. should pay damages to victims," overturning the original judgment against plaintiffs in a lawsuit filed by forced labor victims against the Japanese company. The point was that because the Japanese colonial rule of Korea was illegal, forced labor is also illegal, so that victims’ right to claim compensation was not against law.

"In spite of the agreement between the two countries, it is a judicial precedent by the Supreme Court of Korea that forced labor victims’ civil rights to the company remain," President Moon said in a press conference held in honor of his first 100 days as President in August. “The agreement between the countries cannot violate individuals’ rights." The Korean government did not respond to the Japanese government's request for the Korean government’s correction of an international law violation," after a ruling by the Supreme Court comprising all of the justices, including the chief justice in October of last year, saying "The administration can not intervene in a judgment by the judiciary."

No Solution Yet on Political and Diplomatic Side

The government has yet to come up with a specific solution on the political and diplomatic side and an arbitration plan regarding the South Korean Supreme Court’s October 2018 ruling on compensation for wartime forced labor victims. “Despite our diplomatic efforts, we cannot rule out the possibility that the situation will last long,” South Korean President Moon Jae-in said.

President Moon said on July 8 that the South Korean government would have to take measures if Japan’s retaliatory export restrictions actually did harm to South Korean companies. “That is not desirable at all, and we need to avoid confrontation,” he made his first remarks on the issue that day.

The Japanese government stated that its measure is in compliance with WTO rules. The export is unlikely to be immediately stopped in that the Japanese government stressed the legitimacy of its measure. “The measure is predicted to take the form of procedural inconvenience rather than all-out restrictions,” said Eugene Investment analyst Lee Seung-woo, adding, “Comprehensive restrictions have a negative impact on Japanese exporters, too.”

South Korean and Japanese government officials in charge of trade were likely to have a meeting soon for the first time since the restrictions. In addition, the South Korean government was planning to send Trade Minister Yoo Myung-hee to the United States for international coordination.

The South Korean government explained that the two sides are currently discussing when to have the meeting in Japan. The government was likely to focus on correcting Japan's misunderstanding in that Prime Minister Shinzo Abe mentioned that the semiconductor material export restrictions against South Korea have to do sanctions on North Korea.

In the meantime, Moon Jae-in government confirmed on July 16 that it would not accept the Japanese government’s proposal regarding the organization of a third-party arbitration committee to handle the South Korean Supreme Court’s ruling on compensation for wartime forced labor victims. The Blue House was supposed to reply to the proposal by July 18.

The South Korean government also affirmed that the compensation plan that some are mentioning with regard to the victims and is based on the South Korean government’s and South Korea and Japanese companies’ coordination cannot be an option. “No compensation plan can be discussed without the consent of the victims,” it said, adding, “Some media reports are saying that the South Korean government is giving it consideration, yet the reports are not true at all.”

When it comes to the South Korean government’s plan on South Korean and Japanese companies’ funding, the South Korea’s presidential office said that the plan could be examined because the victims gave their consent.

Seeking Different Solutions to Japan’s Economic Retaliation

The Japanese government will restrict exports of three chemical materials to South Korea starting from July 4 in response to the South Korean Supreme Court’s ruling regarding compensation for forced labor victims.
The Japanese government will restrict exports of three chemical materials to South Korea starting from July 4 in response to the South Korean Supreme Court’s ruling regarding compensation for forced labor victims.

The ruling Democratic Party is becoming more and more hard-line as Japan’s economic retaliation is predicted to last long. The ruling Democratic Party of South Korea renamed its ‘Special Committee on Japan’s Economic Retaliation’ to ‘Special Committee on Japan’s Economic Invasion.’ In addition, the ruling party is opposed to Liberty Korea Party’s proposal for dispatching a special envoy.

The main opposition Liberty Korea Party is extremely wary of opposing the Japanese government. The opposition party is focusing on diplomatic solutions rather than hard-line responses. The party had a meeting on July 17 and discussed the issue with former Vice Minister of Foreign Affairs and former South Korean Ambassador to Japan Shin Gak-soo, professor Chung In-kyo at the Department of International Trade of Inha University, etc.

“The South Korea government is taking advantage of anti-Japanese sentiments without handling Japan’s economic retaliation with diplomatic precision,” Liberty Korea Party Floor Leader Na Kyung-won said at the meeting, adding, “We asked President Moon Jae-in not to come to the front, and yet the Moon Jae-in administration is immersed in the interest of the regime while neglecting national interests.” She went on to say that inciting hatred cannot be any solution and the issue has to be dealt with by narrowing of the gap between a judicial ruling and diplomatic efforts.

More than 70 percent of Korean economic experts say that the Korean Supreme Court’s ruling on compensation for wartime forced labor victims triggered Japan's economic retaliation.

A local daily newspaper recently conducted a survey with 30 economic experts, including professors, private research institute members and corporate executives. More than 70 percent of the respondents answered that the South Korean Supreme Court’s ruling on compensation for wartime forced labor victims triggered the ongoing economic retaliation from Japan, and two-thirds answered that negotiations with Japan and efforts for replacing Japanese industrial materials are the best solutions.

Specifically, 22 out of the 30 answered the ruling resulted in the retaliation, six said Japan’s real intention has yet to be found out, and one said the ruling has nothing to do with the retaliation. The remaining one respondent, Yonsei University economics professor Yang Joon-mo, remarked, interestingly enough, that the Japanese government began to work on export restrictions targeting South Korea in as early as March this year. “The measure has to do with whether Japan is regarding South Korea as an ally and, on the face of it, the measure has resulted from re-export of strategic materials to North Korea and Iran,” he said. 

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