SEOUL (BLOOMBERG) - A South Korean court is set to start liquidating assets of a Japanese company to compensate Koreans conscripted to work during colonial occupation, straining ties between two key US partners just as the Trump administration needs their help in countering China.
A district court in the eastern city of Pohang will start a process on Tuesday (Aug 4) to seize shares valued at about US$356,000 (S$489,779) that Japan's Nippon Steel has in a joint venture with South Korean steelmaker Posco.
No money is expected to move immediately, however, as the liquidation process requires months to realise due to procedural formalities.
Nippon Steel will immediately appeal the notice to seize its assets, spokesman Tsuyoshi Yoshizumi said on Tuesday. If it does not appeal within a week, the order is set to become effective and that would likely inflame tensions as Japan has said the order is unlawful.
The two countries have seen threats to their enmeshed economies and their joint security efforts following South Korea's Supreme Court ruling in 2018 that Nippon Steel and Mitsubishi Heavy Industries were liable to compensate for forced labour during the 1910-1945 colonial period.
The renewed acrimony could prove troublesome for US President Donald Trump, as his administration has stepped up its pressure campaign against China, seeking help from allies to contain Beijing's push into the South China Sea and block Chinese technology on the grounds of posing security risks.
Tokyo has vowed to strike back if the liquidation takes place, while Seoul has said it has already reviewed possible countermeasures in response.
Japan has said all claims were completely and finally settled by a 1965 treaty that established basic relations, while Seoul believes some conscripted workers were not properly compensated for their emotional pain and suffering.
The Trump administration has been reluctant to step in and ease tensions. But last year it pressured Seoul to make a last-minute pivot to save an intelligence sharing pact with Tokyo designed to demonstrate the neighbours' ability to cooperate independently from Washington to counter shared threats including China and North Korea.
The renewed tensions could also hurt the United States on the economic front.
The Trump administration has talked about bringing supply chains home from China, and even publicly floated the need for a group of friendly nations in Asia that could help produce essential goods, seeking assistance from the likes of Japan, South Korea and others.
The tension between Tokyo and Seoul, however, could benefit China, according to Dr Zhao Tong, a senior fellow at the Carnegie-Tsinghua Centre in Beijing.
"The growing gap between Japan and South Korea may help China maintain a good relationship with South Korea due to their shared historical grievances towards Japan and can help ensure that a US-ROK-Japan trilateral security alliance will never become real," Dr Zhao said, referring to South Korea by its formal name.
People in both countries see ties clouded by animosity. A poll published in June by Japan's Yomiuri newspaper and South Korea's Chosun Ilbo found 84 per cent of Japanese and a record high of more than 90 per cent of South Koreans saw the relationship between the two countries as bad.
Japanese Prime Minister Shinzo Abe and South Korean President Moon Jae-in have found support at home for taking a hard line against their neighbour. With both facing slides in their domestic support rate, making unpopular concessions to ease the tensions could lead to an even deeper fall.
Apart from the court cases over colonial-era labour, Japan and South Korea are squaring off at the World Trade Organisation over Tokyo's decision to restrict exports of electronics components vital for South Korea's tech sector.
Tokyo has also shown concern over a memorial at a private botanical garden in Pyeongchang, east of Seoul, showing a man thought to resemble Mr Abe prostrating himself in apology before a seated young woman who represents Koreans trafficked in Japanese imperial army brothels.