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International relations

Japan-South Korea spat spills over to shipbuilding subsidies

New flash point emerges as Tokyo prepares WTO suit

Daewoo Shipbuilding & Marine Engineering's shipyard on South Korea's Koeji Island. As tensions rise, Japan is taking aim at the South Korean government's assistance to the country's shipbuilders.   © Reuters

TOKYO -- The Japanese government is preparing to take South Korea to the World Trade Organization over what it considers unfair shipbuilding subsidies, putting yet more strain on a relationship already troubled by Seoul's recent Supreme Court ruling regarding wartime laborers.

As a preliminary step, Tokyo announced on Nov. 6 that it has asked Seoul to launch bilateral talks over its subsidies to a struggling shipbuilder. With the talks expected to fail, the dispute is almost certain to reach the WTO. 

The move comes just a week after Japan fiercely protested a South Korean Supreme Court ruling ordering Nippon Steel & Sumitomo Metal to compensate South Korean workers forced to work for the company during World War II. The latest dispute signals that tensions over historical issues between the two East Asian neighbors have now reached the trade arena. 

The massive subsidies Seoul offers its shipbuilders "most likely violate World Trade Organization rules," Japan's Ministry of Land, Infrastructure, Transport and Tourism said in a statement on Nov. 6.

Transport Minister Keiichi Ishii noted in a press conference on Nov. 6 that public assistance by the South Korean government "risks delaying corrections to the supply-demand balance." The global shipbuilding industry has been facing a long-lasting supply glut, since the 2008 collapse of Lehman Brothers Holdings.

"We have communicated our concerns to South Korea on various occasions, but we see no improvements," Ishii said.

The talks would start within 30 days, according to WTO rules. If the two sides fail to reach an agreement in the next 60 days, an outcome considered quite likely, Japan will ask the global body to set up a dispute settlement panel. The panel would issue a report within six months determining whether any violations have taken place.

South Korea provides generous support to its major shipbuilders, including the injection of more than $10 billion of public funds into Daewoo Shipbuilding and Marine Engineering, according to Japan's Transport Ministry. Tokyo believes such measures are pushing down prices and distorting the market, and has repeatedly called for change.

But these companies employ tens of thousands of workers, and Seoul seems unwilling to risk the turmoil likely to follow necessary market corrections.

Representatives from the two countries' relevant ministries met in October to discuss the issue, but failed to reach an agreement.

Japan and South Korea are already involved in three WTO disputes, including one on anti-dumping duties on Japanese stainless steel and another over import restrictions against Japanese seafood following the 2011
Fukushima nuclear disaster. The shipbuilding subsidies could trigger a fourth.

This is only the latest in a string of setbacks for bilateral ties. Japan's Maritime Self-Defense Force skipped an international naval review hosted by South Korea in mid-October after it was asked not to fly the "rising sun" flag, which is considered by many Koreans a symbol of Japan's wartime aggression. Later that month, a multiparty group of South Korean lawmakers landed on disputed islands, which Koreans call Dokdo and the Japanese call Takeshima.

Then came the South Korean Supreme Court ruling on wartime workers Oct. 30. Japan has strongly objected to this ruling, arguing it could undermine the very foundation of the countries' postwar relations.

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