Should Nippon Steel, Mitsubishi pay?

By Semoon Chang

The answer is definitely yes, but not through the Korean legal system. On Nov. 1, 2013, 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, or about $150,000, per person. Earlier in July 2013, Seoul and Busan’s high courts also ordered Nippon Steel Corporation to pay compensation demanded by its victims of forced labor. These cases are still in progress.

The root of the problem with any attempt to resolve the forced labor issue is the 1951 Treaty of Peace with Japan and the 1965 Korea-Japan Agreement 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. I will stay away from the legal issue that is not likely to find an agreement between Korean plaintiffs and Japanese defendants anytime soon, if ever. Instead, I would like to look at the economic consequences of such courtroom confrontation.

Both Japan and Korea have experienced remarkable growth since diplomatic relations were restored in 1965 between the two countries. Japan’s merchandise exports to the world were $8.451 billion in 1965 but increased to $683.846 billion in 2014, an 80 fold increase. Korea’s merchandise exports to the world were $173 million in 1965 but increased to $572.665 billion, an incredible 3,310 fold increase. This exponential growth of both economies led the two neighboring countries to become increasingly interdependent.

Even if China made economic relations between Japan and Korea not as important as it was in the early 1990s, bilateral trade between Korea and Japan these days is still critical to the continuing prosperity of both countries. In 2013, about 6.2 percent of Korea’s exports went to Japan while no less than 11.6 percent of Korea’s imports came from Japan.

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. Korea, on the other hand, will 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 would 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 just as important as trade of final products.

In addition, three important, albeit politically sensitive, trade agreements involving Korea and Japan are pending: the China-Japan-Korea Free Trade Agreement that will benefit all three countries, the 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 because it excludes China. Negotiations over these trade agreements are already too complicated without the lawsuits on forced labor. Perhaps more importantly, Japan should understand that, depending on how Korea positions itself in these negotiations, at least one outcome could be very damaging to the future of the Japanese economy.

In terms of financial impact, the monetary burden on Japanese firms from the currently active plaintiffs is not substantial. If sons and daughters of those who worked as forced labor and now deceased were to become new plaintiffs, the legal process can be extremely confusing and time-consuming, clearly hurting both economies.

Leaders of both Japan and Korea must be reasonable and make concessions to resolve the forced labor issue politically, not in the courtroom. The May 2015 meeting between Korea’s Minister of Trade, Industry and Energy Yoon Sang-jick and Japan’s counterpart Yoichi Miyazawa during the Asia-Pacific Economic Cooperation (APEC) trade ministers’ meeting is a good first step that has to be followed and expanded to take care of all pending obstacles that exist between the two countries.

Japan has to admit its wrongdoings during WWII and be generous to the few survivors of forced labor. Japan should realize that Korea is in a stronger position so far as free trade negotiations are concerned. 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.

Semoon Chang is the director of the Gulf Coast Center for Impact Studies.