TOKYO -- A South Korean court can start Tuesday the process of liquidating a Japanese company's assets it seized to compensate those forced work during colonial rule, escalating tensions between two nations that the U.S. counts on to help curb China's rise.
A district court in Pohang could order the sale of Nippon Steel assets, including around 194,000 shares the company owns in a joint venture with South Korea's Posco. Japan has vehemently opposed the sale, arguing that the wartime labor issue was resolved when the two Asian countries normalized bilateral diplomatic relations in 1965.
The U.S. views cooperation from both countries as critical to advancing its interests in East Asia. The renewed standoff comes at a time when the Trump administration is stepping up pressure on China to counter its advances in the South China Sea and slow its push in 5G technology.
"This is all bad news. Nothing good is coming out of this," said Jeffrey Hornung, a political scientist at American think tank Rand Corp. "At a time when U.S.-China relations are worsening every day, we need our democratic allies to strengthen the American rhetoric of a free and open Indo-Pacific," he said.
Tokyo has vowed to retaliate if Seoul goes ahead with the sale.
"We are considering every possible response," Japanese Chief Cabinet Secretary Yoshihide Suga said in a television appearance Saturday.
One potential option is temporarily recalling the Japanese ambassador to South Korea, Koji Tomita. Japan also brought home then-ambassador Yasumasa Nagamine from January to April of 2017 in response to a statue symbolizing wartime "comfort women" installed in front of the Japanese Consulate in Busan, though not as a formal recall.
Japan could also halt or impose stricter restrictions on new visas to South Korean citizens. But this will likely have a minimal effect, since Japan currently does not permit South Korean entries as a general rule in an effort to curb the new coronavirus.
Economically, Japan could seize assets owned by South Korean companies or impose new tariffs in retaliation for harm to Japanese business. Import restrictions may be an option, similar to the export controls Japan imposed last summer on key materials from South Korea for chipmaking and screen production.
Japan is weighing legal options as well. But these are unlikely, as both sides would need to agree to bring a case to the International Court of Justice or the World Bank's International Center for Settlement of Investment Disputes.
Rand's Hornung worried that there will be no end in sight. "When you recall an ambassador or liquidate assets of other countries, that's serious," he said.
But he also noted that the U.S. cannot take sides and will not be able to play a mediating role.
"An actual asset sale is a red line that should not be crossed," said a Japanese government official. Japan also needs to be careful "not to let the South Korean president exploit Japan's response for his political gain," the source added.
South Korean President Moon Jae-in could lodge an international complaint against the Japanese response or use it to drum up anti-Japan sentiment in South Korea. Last summer's export controls, which Japan had said were for national security reasons, were met with a complaint to the World Trade Organization and a threat to scrap a key intelligence-sharing pact. South Korean consumers boycotted many Japanese products, from beer to clothing.
"We can't allow there to be a precedent, so we'll have no choice but to respond if the assets are sold," said an official in Japan's Ministry of Foreign Affairs. "We will work until the very end to convince South Korea not to do this," the official added.
South Korean public opinion is divided on the asset sale. Conservatives have called for a diplomatic solution to the wartime labor issue. But Moon's progressive Democratic Party holds a majority in the legislature and is only expected to harden its stance against Tokyo should anti-Japan sentiment rise.
Additional reporting by Ken Moriyasu in New York.