The Japan-South Korea Dispute: Part II

In Part I of this report, we reviewed the history of Japanese-Korean relations over the last several centuries, highlighting the Japanese invasions of Korea in the 1590s and 1890s, Japan’s assassination of a Korean queen in 1895, and Japan’s colonization of Korea from 1910 to 1945. We also showed how Japanese attitudes have been colored by Korea’s assimilation of Chinese culture and its close geographical proximity to the Japanese homeland. As a result, we argued that the enmity between these two ancient peoples is probably much worse than most observers realize, even if their mutual dislike was subsumed under the hegemonic leadership of the United States after World War II. Key to that process was U.S. pressure on Japan and South Korea to sign their Treaty on Basic Relations in 1965, under which Japan gave $500 million in aid to South Korea in order to settle all claims related to its colonization of the peninsula. This week, in Part II, we’ll explain why Japanese-Korean hostilities have suddenly broken out into the open again. We’ll conclude by discussing the implications of the dispute for the countries’ economies and for investors.

The Fateful Court Case

Japanese-Korean tensions may have been frozen under U.S. hegemony, but they never disappeared completely. As recently as the 1990s, for example, South Korea banned imports of Japanese videos and comic books. There certainly have been periods of warming, as when Japanese prime ministers formally apologized for the country’s colonial behavior. In 2015, Japan also agreed to contribute to a foundation to compensate Korean “comfort women” who had been forced into sexual slavery for the Japanese military during the war. However, many Koreans refuse to believe the Japanese are truly sorry for their behavior before and during World War II, and many consider such compensation to be grossly inadequate.

The proximate roots of the current dispute stem from two actions by the South Korean government last year. In November 2018, South Korean President Moon Jae-in dissolved the comfort women foundation on the grounds that the 2015 agreement didn’t reflect the victims’ actual desire and didn’t require the Japanese government to admit guilt. More importantly, the South Korean Supreme Court ruled last October that the Treaty on Basic Relations of 1965 only resolved state-level claims for diplomatic purposes, rather than individual claims based on pain and suffering. That decision has allowed thousands of South Korean citizens to sue dozens of large, well-known Japanese firms for damages related to forced labor before and during the war. Subsequent court decisions have also allowed those citizens to seize the assets of the Japanese companies.