South Korean protesters tear up a huge Japanese flag during a rally near the Japanese embassy in Seoul in 2019. Under the new president, scenes like this could become less common. Photo: AFP / Jung Yeon-je

A simmering ember of the Pacific War may be about to ignite a trade war between Japan and South Korea, 75 years after Tokyo’s surrender.

A court in South Korea on Thursday ordered the beginning of legal procedures to liquidate the assets of a Japanese company which refused to compensate forced laborers from the war, when Korea was a Japanese colony.

Asia Times has learned from two sources close to the Japanese government that the liquidation of those holdings is a “red line” for Tokyo.

If the line is crossed, Tokyo will retaliate against Seoul with economic countermeasures that range from the industrial to the financial, Asia Times understands. 

The measures would massively outweigh the diplomatic-trade spat that led many to dub 2019 the worst-ever year in terms of relations between the two Northeast Asian democracies.

Thursday’s decision coincides with surprise developments in another issue that has long divided the two countries and won international attention: “comfort women” – the aging survivors of Japan’s sordid military brothels.  

The historical-diplomatic-legal-economic struggle between Japan and Korea has immense ramifications for the region and beyond. Asia Times lays out the key facets of this complex but important controversy in a Q&A below.

What started this?

The wartime labor compensation issue has been a razor-edged wedge between the two countries since 2018, when a court in Pohang, southeastern Korea, seized assets from Mitsubishi Heavy Industries Ltd and Japan’s Nippon Steel & Sumitomo Metal Corp.

The assets from the latter are shares in a joint venture between the Japanese firm and Korean steelmaker POSCO. They are worth approximately US$800,000.

Following the Korean move, in 2019, Tokyo added new bureaucratic procedures that slowed the export of three key chemicals essential for Korea’s flagship semiconductor industry, and removed South Korea from a list of favored trading partners.

Seoul responded by removing Japan from its own trade “white list” while angry Korean consumers boycotted Japanese consumer goods and travel to Japan.  

However, the Korean chip industry was not hard hit. The dispute occurred at a low point of the semiconductor super-cycle, meaning manufacturers had ample inventory and were able to secure related products from other suppliers while developing some of their own.

Moreover, Japanese supplies of the three chemicals were slowed, but not halted – enabling production to continue.

Latterly, South Korea, under heavy US pressure, withdrew plans to leave a trilateral intelligence sharing agreement.  

As a result the dispute fizzled and an uneasy calm descended. By the time Covid-19 hit East Asia, it had dropped far off media radars.

It seems a piffling amount of cash to spark a trade war between trillion-dollar-plus economies. Why the brouhaha?

Bigger issues are at stake than money. For both countries, this is about principle.

For South Korea, it is long-overdue justice for victims of Japanese imperialism. For Japan, it is an issue of prior treaties and bilateral trust. For both countries, it is a trial in the global court of public opinion.

What is Korea’s argument?

The South Korean position is that then-colonial laborers were forced to work for Japanese companies without compensation, often under hideous conditions, and should, at long last, be paid.

Koreans are taught that Japanese colonial rule (1910-1945) was the darkest period of their history, with the worst crimes being committed against “comfort women” as well as forced laborers. Anti-Japanese content is prominent in mass media, film and TV. Polls have even shown that prime ministers of democratic Japan are less popular among the South Korean public than the leaders of totalitarian North Korea.

Current Prime Minister Shinzo Abe, widely seen as a hardcore nationalist and wartime revisionist – his own grandfather was a leader in Japan’s rapacious wartime governance of Manchuria – is reviled.

Many Koreans believe that today’s Japanese are either ignorant of their grandparents’ wartime atrocities or simply refuse to acknowledge them. They say Japan has never apologized or compensated – or has not apologized sincerely or not compensated enough – and that Japan seeks to remilitarize.

What is Japan’s position?

The Japanese position is that the wartime labor compensation issue was long ago settled. When the two countries normalized diplomatic relations in 1965, a major economic package of grants and soft loans, totaling $800 million, was paid from Tokyo to Seoul as colonial-era compensation. Pre-treaty negotiations included highly detailed talks on the amount to be paid to every laborer.

Following the 2018 Korean court ruling, Japan demanded international arbitration on the basis of the 1965 treaty. Korea refused.

Given that the current Korean government had previously nullified a 2015 Seoul-Tokyo deal to end the “comfort women” dispute between the two countries, Japan’s Shinzo Abe administration has called Korea’s Moon Jae-in administration “untrustworthy.”

Many Japanese believe that although emperors, prime ministers and cabinet secretaries have apologized to Korea, Koreans will never be satisfied and that Japan has already paid adequate compensation, and Koreans exaggerate or falsify their colonial-era suffering to shame Japan.

Why don’t Koreans respect the 1965 treaty?

Seoul was, at the time of the 1965 treaty, led by President Park Chung-hee, who had served as an officer in the Imperial Japanese Army – making him a traitor in the eyes of many Koreans.  

Park had seized power in a coup and suppressed democratic activity – but was also the architect of Korean industrialization. In that role, he did not use the Japanese money to compensate victims, but as seed capital for economic development.

Today’s South Korea is led by the leftist Moon government which succeeded the administration of Park Geun-hye – Park’s Sr’s daughter. In 2017, she was impeached on charges of corruption and abuse of power following massive people power protests in 2016.

Many in the current administration, and their supporters, revile both Parks and their political legacies. Many also consider right-wing politicians and certain big business interests to be descendants of colonial collaborators.

Moreover, Japan was a major investor in and economic tutor to authoritarian Korea from the 1960s-1980s. It was only in the 1990s that then-democratic Korea was confident enough to question the past relationship and stand up to Japan.

Meanwhile, Japanese believe that they compensated Korea in 1965 in a treaty that held for decades, and owe nothing further. Case closed.

Did the South Korean court ignore the 1965 agreement?

While the Korean court system is part of the Korean state and so beholden to the 1965 state-to-state treaty, the judge in 2018 invoked supra-national humanitarian norms as the basis for his judgment.

Meanwhile, the Moon administration’s position is that, due to a constitutional separation of power between government and judiciary, it is powerless to alter the 2018 court decision.

Historically, however, Seoul governments have had significant influence over the judiciary via the Ministry of Justice, and the current government is engaged in a major struggle to reform the prosecution.

This is happening amid highly unusual developments in the comfort women issue, correct?

Indeed. The latest move on the forced labor front coincides with a seismic shock shaking the community advocating for surviving comfort women – another huge thorn in the side of Seoul-Tokyo relations.

The former head of the highly influential NGO the Korean Council for Justice and Remembrance for the Issues of Military Sexual Slavery of Japan, Yoon Mi-hyang, is currently taking massive fire for alleged corruption.

Her accuser? None other than Lee Yong-soo, a 91-year-old ex-comfort woman and arguably the highest-profile survivor of Japan’s military brothels. Lee accuses Yoon of taking advantage of the comfort women and of sowing hatred between Japan and Korea.

Under Yoon’s leadership, the Council worked with great success to raise awareness of comfort women internationally – and with equal success to invalidate initiatives designed to settle the issue between the two countries.

The Council was the key mover in abrogating Tokyo’s Asian Women’s Fund in the 1990s, complaining that the monies came from Japanese firms and the public, not the government.

Although the majority of then-living comfort women accepted it, the Council fiercely opposed the agreement between Park and Abe in 2015, under which the Japanese leader apologized to the comfort women and offered compensation that was delivered in 2016.

Subsequently, the Moon administration followed the lead of the NGO, rather than that of most comfort women, unilaterally nullifying the agreement and freezing the fund, angering the Abe administration.

A recent move by Yoon has made things embarrassing for the current government. As of April’s legislative elections she clearly declared her political colors when she left the Council and joined Moon’s ruling Democratic Party as a lawmaker.

Needless to say, Korea’s right-wing press has had a field day.

When is Armageddon?

Japan’s chief cabinet secretary said Tokyo would “use every option on the table” to protect Japanese investments. However, the Korean court has left open a window of opportunity.

The Japanese corporate defendant has – under orders from Tokyo – declined to accept the notice of damages from the Korean court. On Thursday, it was announced that the court will consider the papers served as of August 4, whether the Japanese company accepts them or not.

That looks to be the date when the asset liquidation begins, the line is crossed, and Japan retaliates.

Why is this important?

Politically, Japan and Korea are democratic neighbors with separate alliances with the United States. But history – and the related issues of interpretations, apologies and compensation – bedevils bilateral relations.

Due to this, Washington has failed to forge a trilateral alliance in Northeast Asia to counter China, North Korea and Russia.

Economically, a “decoupling” between China and the United States looks increasingly inevitable – raising incredibly complex supply chain and relationship challenges for companies worldwide. In yet another risk for the global economy, a 2018-2019 bilateral dispute looks set to reignite more fiercely than ever.

Who will win?

G3 Japan’s economy (GDP: $5.1 trillion in 2019) far outweighs G11 South Korea’s (GDP: $1.63 trillion). And last year, Washington took Tokyo’s side after Seoul threatened to void a trilateral intelligence-sharing agreement.

However, South Koreans may be willing to endure more pain. They are, generally, more emotionally invested in anti-Japanese sentiment than Japanese are in anti-Korean sentiment.

Can this dire situation be forestalled?

With the United States embroiled in domestic chaos and with President Donald Trump focused on the November election, the obvious middleman arbiter between Japan and South Korea is absent.

That leaves it up to Seoul and Tokyo to compromise and reach an agreement. On current form, neither Abe nor Moon looks likely to budge.