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Japan-South Korea rift

Nippon Steel to immediately appeal South Korea's asset seizure

Ruling allows for confiscation of stocks to compensate for wartime labor

Nippon Steel says the wartime labor issue has already been resolved by the Japanese and the South Korean governments.   © Reuters

SEOUL -- Nippon Steel decided on Tuesday to immediately appeal a South Korean court ruling that took effect the same day and allows for the seizure of company assets as compensation for wartime labor during Japanese colonial rule.

Unless Nippon Steel appeals by Aug. 11, a process will begin that leads to the sale of its stake in a joint venture with South Korean steelmaker Posco.

The ruling could spark a tit-for-tat dispute between the Asian neighbors, possibly including the recall of Japan's ambassador in South Korea. Critics said it raises the risk for Japanese investors in South Korea by overturning a ground rule.

"Our understanding is that [the wartime labor issue] was settled completely and finally, through the 1965 Agreement on the Settlement of Problems concerning Property and Claims and on Economic Cooperation, which was a legitimate agreement between nations," Nippon Steel said on Tuesday.

"We continue to respond in the appropriate manner, considering diplomatic negotiations by both the Japanese and South Korean governments," the company said.

If Nippon Steel's appeal is rejected, the company can try again. The appeals process is expected to delay a court order to sell the seized shares by several months.

South Korea's government has stood by the verdict in the Nippon Steel case and has not offered any other recourse. President Moon Jae-in's government appears reluctant to take any action that could be interpreted as a concession toward Japan.

"We continue to make diplomatic efforts toward a resolution," a Foreign Ministry spokesperson said Tuesday. "We hope for a more enthusiastic response from the Japanese government."

A bilateral investment agreement that took effect in 2003 states that neither side is to give one country's investors less favorable treatment than the other's.

"If the basic principles [of the agreement] become fuzzy, Japanese companies cannot invest with peace of mind," a Japanese government source said.

Similar cases have been brought against other Japanese companies in South Korea. If Nippon Steel' assets are eventually sold off, other companies could face the same fate.

Chief Cabinet Secretary Yoshihide Suga, the Japanese government's top spokesperson, said Tokyo "will respond resolutely with all options in mind." Suga did not mention specific measures.

Japan could seek to contest the Nippon Steel ruling at the International Court of Justice or the World Bank Group's International Center for Settlement of Investment Disputes. But these options would require the agreement of both sides of the dispute.

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