Nippon Steel: South Korea Is Going Rogue

South Korean government should take responsibility to avoid rift with Japan
January 16, 2019 Updated: February 21, 2019

This is the second article in a series. The first is available here.

On Oct. 30, 2018, the Supreme Court of the Republic of Korea (ROKSC) denied a final appeal by Nippon Steel & Sumitomo Metal Corp., ordering the company to pay damages arising from forced-labor claims during Japanese colonial rule in the 1940s.

This startling verdict set an alarming precedent for international business in South Korea, and deeply affected South Korea’s relationship with Japan, the United States, and allied countries throughout Asia.

New Developments

There had been hope that South Korea might find a way to reassure the international business community and mitigate the impact of the Nippon Steel decision. However, recent events have dashed those hopes.

On Nov. 28th, the ROKSC denied a final appeal by Mitsubishi Heavy Industries in a similar case, ordering the company to pay more than $2 million to 28 plaintiffs.

On Dec. 4, lawyers representing plaintiffs in the Nippon Steel case set a deadline of Dec. 24 for payment. After Nippon Steel refused, the Center for Historical Truth and Justice, a civic group bankrolling the lawsuits, announced on Christmas Day that they would move to seize Nippon Steel’s assets.

On Jan. 9, following a court order, lawyers seized stock held by Nippon Steel in a joint venture with a South Korean company.

On Jan. 10, South Korea (ROK) President Moon Jae-in, in response to the case, declared that Japanese companies such as Nippon Steel ought to be “more humble.” As with many Japanese corporations, much of Nippon Steel’s stock is owned by retired workers.

On Jan. 12, the Democratic People’s Republic of Korea threatened to order asset seizures on the basis of forced-labor claims, unless Japan stopped demanding the return of dozens of Japanese citizens kidnapped in the 1960s and ’70s.

Settled by Treaty

The issue of compensation for colonial-era forced labor was settled by a diplomatic agreement signed in 1965. Under that agreement, Japan paid $300 million to the ROK, along with $200 million in preferential loans. These payments “[settled] completely and finally” all outstanding claims for unpaid labor. Both sides agreed in 1965 that “no contention shall be made” regarding further claims.

The 1965 agreement plainly and specifically discussed forced labor. In the agreed minutes, which covered the negotiations blow-by-blow and were signed by both sides, South Korean diplomats specifically, clearly, and unequivocally agreed that the agreement covered exactly the sort of claims raised in Nippon Steel.

The ROKSC took pains to state many times, at great length, that the Japanese occupation of Korea was illegal. This is, legally, a total non-sequitur.

The fact that conduct was illegal doesn’t invalidate a settlement. If I negligently injure you and you file suit, we can settle. That settlement is legally binding, even though my negligent actions were in violation of tort law.

Dangerous Precedent

There are significant procedural problems with the ruling in Nippon Steel.

Businesses rely on reasonable restrictions to their liability. If I operate a coffee shop in New York and you file suit against me in Zimbabwe, it’s unreasonable to force me to fly to Harare. Not every defendant can (or should) be required to defend every case in every jurisdiction.

Both Nippon Steel and Mitsubishi Heavy are headquartered in Japan. To force either company to defend a claim in Korea, plaintiffs should have to establish that the events giving rise to their claim took place within South Korean jurisdiction.

The forced-labor claims in Nippon Steel concern events that took place in Japan. Plaintiffs should therefore sue where the events took place—in Japan.

The plaintiffs in both Nippon Steel and Mitsubishi Heavy apparently agreed because they already previously filed suit in Tokyo. In fact, the Japanese High Court has already heard—and dismissed—plaintiffs’ claims.

The ROKSC should have dismissed suits out of hand in both Nippon Steel and Mitsubishi Heavy, based on this lack of personal jurisdiction. Instead, the ROKSC apparently believes that any corporation, from any country, can be held liable in the ROK for any actions it’s ever taken that involve the ROK in any way—even if liability is explicitly precluded by treaty.

A Path Forward

Many have called for international arbitration of these disputes, and with some reason. The 1965 Agreement explicitly states that all disputes should be decided by a prescribed transnational panel. The ROK was, by binding transnational law, legally obligated to refer any issues to that panel.

Unfortunately, even if the ROK agreed to international arbitration (and it should), and even if international arbiters ruled in favor of Nippon Steel and Mitsubishi Heavy (and they would), there is no guarantee that the ROKSC would recognize the verdict.

It’s evident that the ROKSC is willing to ignore binding international treaties in reaching its verdicts, even when the legal arguments are suspect. A ruling for Nippon Steel from the Hague could just be one more international treaty for the court to ignore.

To counter this, and to reinforce the rule of law in South Korea, the ROK government should take action. Moon can’t constitutionally overturn a decision of the ROKSC. Nor can the National Assembly, which is South Korea’s parliament. In fact, Moon has already declined an offer by Japan to attend diplomatic talks in person. Moon cited separation of powers: Ss the judiciary is a separate branch, there is little that the executive can do.

But there are other ways of addressing this issue that don’t contravene separation of powers. Moon should ask the National Assembly to create a dedicated fund for forced-labor claims, which would compensate any international corporation that has losses because of asset seizures resulting from forced-labor suits.

Creating such a fund would remove the economic incentive for international companies and investors to withdraw from South Korea. Firms would still have liability under the precedent set by Nippon Steel, but they could rely on the government to make them whole in the event of any tangible losses.

Moreover, by creating a special fund, Moon would express his commitment to the 1965 agreement and to a forward-looking relationship with Japan and the United States. He would also reassure the international community that South Korea takes its diplomatic agreements seriously and respects the rule of law.

The total claims resulting from Nippon Steel and Mitsubishi Heavy amount to a fraction of 1 percent of ROK’s annual government spending. Such a small investment, for such clear diplomatic and strategic returns, is clearly justified.

Cory Evans is an assistant professor at Baruch College, the City University of New York. His research focuses on Japanese law and diplomacy in East Asia.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.