No winners in Korea-Japan trade dispute

By Chang Se-moon

I feel sad to see that political leaders in Japan and Korea are acting as if they never read my July 5, 2015, article in this newspaper on the same trade issue that is now damaging both economies.

My story goes back to Nov. 1, 2013. On that day, a court in the southwestern city of Gwangju, Korea, ruled in favor of four Korean women who were forced to work for Mitsubishi Heavy Industries of Japan during World War II. The court awarded them 150 million won ($126,700) each.

Earlier in July 2013, high courts in Seoul and Busan also ordered Nippon Steel Corp. to pay compensation demanded by victims of forced labor in their factories.

The root of the problem with any attempt to resolve the forced labor issue is the 1951 Treaty of San Francisco with Japan and the 1965 Korea-Japan Basic Treaty that made it almost, if not totally, impossible for individual Korean victims of Japan's wartime atrocities to recover any monetary damages that they may have suffered.

A similar view has also been expressed by the ad hoc committee on the compensation issue that was appointed by the then President Roh Moo-hyun who governed South Korea from 2003 to 2008. In essence, the committee stated that, other than limited exceptions, all individual rights for compensation relating to forced labor were resolved by the 1965 treaty.

The whole issue blew up, when the Supreme Court of Korea re-affirmed individual rights to sue Japanese firms for compensation in October 2018. It is unfortunate that this issue was left to a decision by the court, rather than negotiated through the political process.

I will stay away from the legal issue that is unlikely to see an agreement between the Korean plaintiffs and Japanese defendants anytime soon, if ever. Instead, I would like to look at the economic consequences of such a courtroom confrontation.

Both Japan and Korea have experienced remarkable economic growth since diplomatic relations between the two countries were restored in 1965. The exponential growth of both economies led the two countries to become increasingly interdependent.

Even if the rise of China made economic relations between Japan and Korea not as important as they were in the early 1990s, bilateral trade between Korea and Japan these days is still critical to the continuing prosperity of both.

If economic relations between Japan and Korea continue to cool, Korea will increase its efforts to find supply chains for its booming manufacturing giants away from Japan. On the other hand, it will also lose Japan as a source for less expensive and high-quality manufacturing intermediate goods as well as many Japanese tourists.

Further, if Japanese companies operating in Korea close their doors, Korean employees will lose their jobs.

Professors David A. Parker and Mikael Lindfors of cigitASIA stressed in their March 12, 2014, article titled "Economics and the Japan-Korea Relationship: Adding Value" that "neither Tokyo nor Seoul should underestimate the positive effects of Korean-Japanese cooperation for both countries and the world."

Note that economic relations extend well beyond imports and exports of final products. They also include intra-industry trade that is not readily visible to the public, but is just as important as trade of final products.

In addition, three important, albeit politically sensitive, trade agreements involving Korea and Japan are pending: a China-Japan-Korea free trade agreement that will benefit all three countries, a China-Korea free trade agreement that will do more harm than good to the Japanese economy, and the Trans-Pacific Partnership agreement that may increase trade between Japan and Korea at the expense of China.

Negotiations over these trade agreements are already too complicated without the lawsuits on forced labor.

In terms of financial impact, the burden on Japanese firms from the currently active plaintiffs is not substantial. If sons and daughters of 724,727 Korean workers who were taken to Japan, Sakhalin and the southern Pacific islands as forced labor were allowed to become new plaintiffs, the legal process can be extremely confusing and time-consuming. This will clearly hurt both economies and generate greater hostility between the two countries.

Leaders of both Japan and Korea must be reasonable and make concessions to resolve the forced labor issue politically. A solution should not be allowed to proceed from the courtroom.

Japan has to admit its wrongdoings during WWII and be generous to the few survivors of forced labor. Korea, on the other hand, must understand that no matter how hard it tries, history cannot be reversed. If both Japan and Korea allow the legal process to dictate the forced labor issue, both countries will lose. There will be no winners.

Politicians, who know that their actions will hurt their own country, but are cunning enough to use the public's hostility toward the other country to their advantage in domestic politics, are the worst kind. I am hoping that neither President Moon Jae-in of Korea, nor Prime Minister Shinzo Abe of Japan, are that kind of politician.

Chang Se-moon (changsemoon@yahoo.com) is the director of the Gulf Coast Center for Impact Studies.

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