Living in the Shadow of Flawed Peace: How General International Law Is Implicated in the Trade War between Japan and South Korea

As the anniversary of V-J Day approaches, the legacy of World War II still casts a long shadow on its previous Pacific theatre.  Last month, an unprecedented quadripartite incident involving warplanes from, inter alia, Japan and South Korea played out in the territorial airspace of the contested Dokdo/Takeshima islands, disputed territory that was left unresolved in the postwar San Francisco Peace Treaty of 1951 (SFPT).  Yet, the warning shots fired above those tiny rocks is not the only instance of regional tensions heating up in Northeast Asia.  On 2 August, Japan decided to remove South Korea from its list of trusted trade partners, following its restrictions on the exportation of three important chemicals to South Korea imposed last month.  Days later, Japan pulled back and permitted export of a key chemical for semiconductor manufacturing in Korea.  The two Asian economic titans have since brought their trade war to the attention of the WTO’s General Council. 

Yet the WTO is not the only international legal regime engaged in the escalating trade conflict between Japan and South Korea.  In this contribution, I aim to show that the now seldom-trodden postwar peace treaties concluding WWII are still pertinent to current international relations as evidenced by the diplomatic row between Seoul and Tokyo.  Self-help remains relevant to the effective operation of the international legal order, especially with respect to the enforcement of international legal rules lying outside the purview of any (quasi)judicial fora such as flaws from postwar peace treaties. 

The End of a World War  

While Japan ended its colonial rule of the Korean Peninsula following its surrender to the Allies at the end of WWII, the Peninsula was soon split into two entities.  Because of the Allies’ disagreement as to whether Korea was a belligerent party, neither Pyongyang nor Seoul signed the SFPT.  Despite its exclusion of both Koreas, the SFPT includes a China/ Korea entitlement clause (article 21).  Among other things, article 4—the framework provision on, inter alia, the disposition of property of Japan and of its nationals in the territories renounced by Japan (including the Korean Peninsula) and the relevant claims—is applicable to Korea by way of this special clause.  Yet the apparent omission of the reparation clause (article 14) sowed seeds of the lingering dispute over responsibility and reparations between Japan and South Korea.

Seoul and Tokyo did not normalize their relations until the signing of the Japan-South Korea Treaty on Basic Relations of 1965 (the 1965 Treaty).  Despite its vague reference to ‘the relevant provisions’ of the SFPT in the preamble, whether the 1965 Treaty itself falls in the category of bilateral peace treaties under the SFPT (article 26) and is thus subject to the conditions and terms of the SFPT is unclear.  Alongside the 1965 Treaty was another treaty on the settlement of problems concerning, inter alia, property and claims between the two countries (the Settlement Agreement).  Although it comprises only four articles in the main text that provides for Tokyo’s payment to Seoul of millions worth of in-kind grants and long-term low-interest loans (article 1), it came with two protocols, exchanges of notes, and agreed minutes, suggesting the winding negotiations between the two sides with the contentious question of compensation at its core.   

It is telling that the Settlement Agreement left undefined the actual items of grants and loans paid for, even if it provides that the problem concerning, inter alia, property and claims between the two countries and their nationals is ‘settled completely and finally’ (article II).  The treaty text itself is unclear as to the underlying sources of the potential claims to which the Settlement Agreement was applicable, creating uncertainty as to the universality of the property claims settlement therein.  Due in part to such textual ambiguities, the question of state responsibility for the full scope of postwar reparations has since become a thorn in the side of the bilateral relations between Seoul and Tokyo.    

The Conduct of Long Legal Battles

Notably, compensation (including solatium) for ‘forced labour’—claims relating to Koreans conscripted to work for Japanese corporations as part of Japan’s wartime measures—has emerged as a central topic in Koreans’ legal battles over Japan’s responsibility the Settlement Agreement was meant to settle.  As victims were pursuing their legal claims vis-à-vis private companies such as Mitsubishi Heavy Industries (Mitsubishi) and Nippon Steel & Sumitomo Metal Corp (Nippon Steel), such lawsuits did not have to face the jurisdictional bar of State immunities.  Nor did they require the South Korean Government to initiate the action for the purpose of standing.  Even so, the road leading to the seismic decision of the Supreme Court of Korea (SCK) on 30 October, 2018 is winding, to say the least. 

The case started as part of civil lawsuits against Nippon Steel among other businesses for unpaid wartime wages in California between 1999 and 2000.  After their litigations went nowhere in the US and Japan, the plaintiffs tried their luck on their home turf.  Echoing the US and Japanese judicial rulings, a trial court in Seoul ruled in 2005 against the plaintiffs on the ground that the Settlement Agreement precluded their claims vis-à-vis Nippon Steel.  This case and another lawsuit against Mitsubishi eventually worked their way up to the SCK.  In two separate but related decisions on 24 March, 2012, the SCK ruled that solatium claims relating to wartime forced labour were not covered by the Settlement Agreement and remanded the case to the Seoul High Court (SHC).  After Mitsubishi and Nippon Steel appealed the SHC’s rulings, the SCK first delivered its momentous decision last October, affirming the ruling ordering Nippon Steel to compensate the plaintiffs. 

The Beginning of the Trade War

Japan soon lodged protest with the South Korean Government, accusing it of breaching the Settlement Agreement, while the SCK followed up its seismic decision with another ruling against Mitsubishi on 29 November.  To firm up its protest, Tokyo requested diplomatic consultation with Seoul to resolve the alleged breach of the Settlement Agreement by the South Korean judicial decisions on 9 January, 2019.  Receiving no response from Seoul, Tokyo threatened to take ‘countermeasures’ on 8 February.  Three months later, Japan invoked the dispute settlement clause in the Settlement Agreement (article III) with the delivery of a ‘Notification and Statement of Claim’ to South Korea on 20 May.  Before it rejected Japan’s call for arbitration for domestic constitutional reasons on 18 July, South Korea made a counter offer, proposing to compensate the victims of forced labour with voluntary donations by South Korean and Japanese companies.  Rejecting the South Korean proposal and then citing security reasons, Japan announced that it would impose restrictions on the exportation of three security-sensitive chemicals to South Korea on 1 July, with the vague suggestion that ‘trust [had] been lost’ between the two sides.  In response, South Korea brought the issue before the WTO General Council on 24 July, while the Japanese ambassador defended the imposed trade regulations squarely on security grounds.  Then came Japan’s decision to remove South Korea from the ‘white list’, ostensibly for security reasons, on 2 August.

Trade War as an Exercise of Self-Help?

Although the ongoing trade conflict between Japan and South Korea was first debated in an international forum under the WTO legal regime, the relevance of general international law on State responsibility is undeniable.  As Japan indicates in a statement issued on 19 July (the Statement), South Korea is accused of breaching its obligations in international law—resulting from the South Korean courts’ allegedly wrongful interpretation of the Settlement Agreement (especially paragraph 2).  The compelling evidence of the pertinence of the law of State responsibility to the diplomatic row between Seoul and Tokyo lies in paragraph 7 of the Statement: ‘Given the severe situation …, the Government of Japan will be taking necessary measures against [South Korea].’  Notably, the Statement did not mention export restrictions or other trade measures. 

It is one thing to say that the law of State Responsibility is engaged in the tension resulting from the South Korean judicial rulings; it is quite another to say that the Statement is a proof of the relevance of the law of State responsibility to this regional economic war.  To bear out the latter contention, the following questions need to be answered: What is ‘the sever situation’ that gave rise to Japan’s warning of ‘taking necessary measures’?  Does the South Korean courts’ allegedly wrongful interpretation of the Settlement Agreement cause the severe situation straining the relationship between Seoul and Tokyo?  Is Japan’s decision to remove South Korea from the white list a part of the conceived ‘necessary measures’? 

It is noteworthy that the Statement was issued the day after South Korea’s formal rejection of Japan’s call for arbitration.  The Statement indicates that South Korea’s ‘repeated failures…to take the steps toward the constitution of the arbitration board… constitute further breaches of the [Settlement] Agreement’ (paragraph 6).  It transpires that ‘the severe situation’ that prompted Japan’s threat to take ‘necessary measures’ consists of two types of breach of the Settlement Agreement on the part of South Korea: the South Korean courts’ allegedly misinterpretation of the Settlement Agreement and the South Korean Government’s blocking the constitution of an arbitration board.  To put it differently, the Statement considers necessary measures to be taken as response to South Korea’s alleged breach of its treaty obligations arising under the Settlement Agreement.  In this light, the objective of such measures is to enforce the Settlement Agreement.  Taken as a whole, Japan was signalling that it may use measures that lie outside the Settlement Agreement but are recognized in customary international law to enforce the breached treaty.  Hence self-help—the classical toolkit in the law of State responsibility and the fallback position in the enforcement of international law.  Nevertheless, to decide whether Japan’s export restriction is an exercise of self-help under the law of State responsibility, we need to ask, why is it even necessary for Japan to evoke self-help in such circumstances?  The answer lies in a design flaw in the Settlement Agreement.

The Flawed Peace and the Relevance of the Law of State Responsibility

In terms of the design of the dispute settlement mechanism, the Settlement Agreement departs from its seemingly parental treaty.  Instead of choosing the ICJ as the final forum as the SFPT does (article 22), the Settlement Agreement falls in line with other postwar peace treaties and relevant agreements most of which provide for arbitration as the final dispute settlement mechanism.  And, this is the root cause of Japan’s evocation of self-help. 

Under the dispute settlement clause (article III), a dispute arising under the Settlement Agreement is to be settled by an ad hoc arbitration board of three members after ‘diplomatic channels’ fail to resolve it.  As with those postwar peace treaties that provide for the final settlement of disputes by arbitration, the fatal flaw of the provision for arbitration under the Settlement Agreement concerns the constitution of the arbitral tribunal when a State party to the dispute fails to appoint its arbitrator.  This may seem odd to students of international law who have been fascinated with the amazing development of international organizations and the meticulous design of various treaty regimes.  As the UNCLOS illustrates, the President of the International Tribunal for the Law of the Sea may appoint the arbitrator on behalf of the boycotting State party so that the arbitration process can proceed. And, the South China Sea Arbitration Award proves this design to be effective. 

Yet we must not forget that it is the period immediately following the end of WWII that we are talking about. Many peace treaties concluded during that period did conceive of the involvement of some personnel of high political stature or a third State in the constitution of the arbitral tribunal.  For example, the five Paris Peace Treaties of 1947 did include the UN Secretary General as the last resort in the appointment of the third member of the Conciliation Commission, a functional equivalent to an arbitral tribunal.  The problem is how to unblock the instituting of the arbitration process if a State party to the dispute refused to appoint its Commission member.  This is at the core of the ICJ’s advisory opinion Interpretation of Peace Treaties with Bulgaria, Hungary and Romania.  According to the ICJ, the UN Secretary General’s appointment power under the Paris Peace Treaties can only be invoked after the two disputing parties have already appointed their commissioners and both commissioners have failed to agree on the third member.  In sum, the arbitration clauses in these treaties are toothless as either disputing State party can block the constitution of the relevant arbitral tribunal simply by not appointing a commissioner/arbitrator at all.

The Settlement Agreement was signed nearly two decades after the signing of the Paris Peace Treaties in 1947.  It did conceive of, inter alia, the situation where a State party to the dispute refused to appoint its arbitrator.  Should either State party fail to appoint its arbitrator, the dispute settlement clause provides for an alternative to the conventional method for the constitution of an arbitral tribunal (article III, paragraph 3).  In such situation, Japan and South Korea, instead of appointing their respective arbitrators, will each choose a third State as their appointing representative.  Once the two appointing States are chosen, Japan and South Korea will play no role in the constitution of the arbitration tribunal.  Instead, the two appointing States will each designate an arbitrator and jointly decide on another third State who will further appoint the third arbitrator. 

The trouble is that a boycotting State party who refuses to appoint its own arbitrator may well fail to designate a third State as its appointing representative.  That is exactly what Japan has accused South Korea of in the Statement (paragraphs 4 & 5).  In the final analysis, the effectiveness of the seemingly innovative dispute settlement clause under the Settlement Agreement relies on each government’s judgment as to whether to leave a particular dispute to the hands of arbitrators in light of all the relevant circumstances.  In sum, the Settlement Agreement suffers the same fatal design as other postwar peace treaties.

As the dispute settlement clause is insufficient, it is no surprise that Japan turned to the classical means of self-help to enforce the Settlement Agreement.  Seen in this light, Japan’s restrictive trade measures against South Korea seem to be part of its threatened necessary measures to counter South Korea’s alleged breach of the Settlement Agreement, a textbook case of the law of State responsibility.

Concluding Remarks 

As the ongoing diplomatic row between Japan and South Korea illustrates, even though WWII ended over seventy years ago, the decades-old peace treaties which were meant to have settled all wartime issues, can still occupy centre stage in a live legal battle on the international stage.  Owing to their flawed design but continuing relevance, self-help may come to the rescue in a dispute over the WWII legacy as is playing out in Northeast Asia.  South Korea’s approach to the Settlement Agreement may look feeble in terms of the law of treaty interpretation.  Still, is the trade war initiated by Japan a lawful exercise of self-help?  Tohe answer this sixty-four-thousand-dollar question requires a close examination of the relationship between the principle of general international law on State responsibility and the WTO law, but that’s a topic for another day.