A Diplomatic Early Warning: Resolving the Recurring Historical Grievance Litigation Between South Korea and Japan

The August 2023 Camp David Summit between Japan, South Korea, and the United States was notable for several initiatives, including a supply chain early warning system to identify potential disruptions of critical industrial components by unfriendly state actors. An early warning system related to industrial components may indeed prove essential for certain types of manufacturing and defense, but for the Summit’s long-term viability, a different indicator is needed. If the trilateral were to extend the concept of an early warning to the three countries’ collective diplomatic health, recent court rulings in Seoul would have the warning system flashing red.

The colonial history between Japan and Korea has often derailed the bilateral relationship. Most recently, that history has manifested in litigation brought by South Korean plaintiffs against Japanese firms for their use of forced labor during World War II. For their part, Japanese companies maintain that these issues were settled by the 1965 treaty normalizing relations with South Korea and the subsequent payments Japan made to South Korea in the decade that followed.

In 2012, however, South Korea’s Supreme Court adopted a novel interpretation of both colonial history and corporate liability, allowing South Korean plaintiffs to bring lawsuits against Japanese companies. After two such cases resulted in verdicts in 2018 against Nippon Steel Corp. and Mitsubishi Heavy Industries Ltd., in 2021 the Court ordered the liquidation of the defendants’ assets to satisfy the judgments. This caused severe bilateral tension, including a trade dispute and the severing of military information-sharing. In a region of intense U.S. interest, with an increasingly aggressive China and a provocative North Korea, two traditional U.S. allies being at odds with each other would be extremely worrisome. A fractured Japanese-South Korean-American trilateral alliance could convey the wrong message regarding the United States’ ability to defend Taiwan, contain North Korean nuclear development, and blunt China’s maritime expansion.

The 2022 South Korean election of President Yoon Suk Yeol, however, marked a tone shift in relations between Seoul and Tokyo. With his stated priority of restoring the relationship with Japan, he announced a fund to compensate forced labor plaintiffs with donations from Korean businesses (herein the “Korean Fund”). Together with a receptive partner in then-Japanese Prime Minister Kishida Fumio, this reset allowed the countries to calm the polarizing issue of historical grievances. A recent ruling in a forced labor case, however, should be setting off a diplomatic early warning signal.

This case was brought against Japanese firm Hitachi Zosen by one South Korean plaintiff. After an initial decision was handed down in 2019, ordering it to compensate the plaintiff, Hitachi Zosen sought to avoid asset seizure by depositing funds with the Seoul Central District Court. This step was unusual in and of itself, marking the first time a Japanese firm had paid funds in response to a historical grievance decision, though notably it paid the funds to the court, not directly to the plaintiff. The South Korean Supreme Court finalized the ruling in December 2023, and, in early February 2024, the funds were transferred.

Why Hitachi Zosen took the step it did in 2019 is unclear. Similarly situated Japanese firms have refused payment altogether. Technically, Hitachi Zosen’s funds were not paid directly to the plaintiff but to a court, allowing the company to maintain a position against the litigation. Nevertheless, the case marks a first. And while the case is an outlier in its posture, with a single plaintiff and a relatively small monetary award, it also serves as a warning: despite the Korean Fund, forced labor litigation still represents a threat to Japan-Korea relations.

Limits to the Current Funding Scheme

Both sides would do well to heed this warning. At last count, eleven out of the fifteen plaintiffs that have reached a final court disposition have accepted payment from the Korean Fund. While this is positive in terms of normalizing bilateral relations, it also raises red flags.

The first is the rationale of the remaining plaintiffs. Their unwillingness to accept compensation from the Korean Fund relates directly to its composition. For these plaintiffs, or future like-minded litigants, a fund paid for by South Korean sources and without Japanese assets does not represent Japanese accountability.

This raises the second—and perhaps greater—concern about the long-term viability of the Korean Fund. There is no shortage of future litigants. Over two thousand additional forced labor plaintiffs are currently at some stage of the judicial process. If even a small percentage of these cases reach a verdict and the litigants similarly refuse payment from the Korean Fund, it may jeopardize further acceptance of this payment strategy both among plaintiffs and among the South Korean public.

The Yoon administration appears to understand the importance of winning widespread acceptance for the Korean Fund. To that end, the Fund went so far as to make a security deposit in the amount of the court-awarded verdicts for the plaintiffs that have thus far refused payment. Whether this will be allowed, however, presents the third challenge to the Korean Fund. At the district court level, the court administration refused to accept the validity of the security deposit to satisfy the verdict. In a subsequent challenge to this decision, the Fund lost. The challenge now sits with the high court. If the Korean Fund ultimately loses, there is a very real danger that historical grievance litigation could once again jeopardize bilateral relations.

Even if the Korean Fund prevails, however, and this third-party strategy for addressing court awards continues, it is likely not a long-term solution. In practical terms, it is not large enough to handle the full sum of the pending cases. President Yoon suggested as much in February, calling for further monetary contributions to the Korean Fund by both South Korean and Japanese companies. In May, the Korean Fund announced it had a considerable shortfall in covering existing court verdicts. Overall, without the appearance of accountability that would come with Japanese contributions, it is difficult to see all South Korean plaintiffs, and the South Korean public, accepting these—or similar—payments as a satisfactory conclusion to the issue of forced labor.

A Modified Way Forward

What can be done? President Yoon’s call for additional contributions is a step in the right direction, but additional support must include a Japanese component. Yet Japanese industry has maintained that the litigation in Korea is solely a domestic issue and that Japan’s commitment was satisfied by the 1965 normalization treaty. Practically speaking, Japanese businesses have little current incentive to contribute. The Korean Fund has, to this point, addressed the litigation with moderate success through Korean contributions alone. More likely underlying Japanese reticence, however, is a practical assessment of risk. If Japanese participation in the Korean Fund were interpreted as an admission of culpability, the thousands of additional plaintiffs seeking compensation—and perhaps thousands more who have yet to file—could have their claims bolstered.

Like most compromises, the answer will lie in an option that stops short of either side being completely satisfied, but allows each to credibly claim that its interests were served. Direct payments to plaintiffs are untenable for Japanese parties, and given their reluctance to participate thus far, joining the Korean Fund appears equally unlikely. Yet, Japanese industry appears very willing to engage in forward-looking collaboration with Korean counterparts. Keidanren, the Japanese business federation, and the Federation of Korean Industries (FKI), its equivalent, quickly embraced the March 2023 announcement by the Yoon administration, each establishing a fund dedicated to projects, cooperation, and citizen exchange going forward. Both groups, however, were careful to distinguish these efforts from the Korean Fund for forced labor plaintiffs.

Structuring a Shared Venture

Despite this distinction, Japan and South Korea share many priorities: regional security, green technology, and demographic challenges, to name a few. A solution to historical grievances, therefore, could take the form of a joint venture that addresses one or more of these broad societal concerns, but also integrates a positive legacy for forced labor litigants. This initiative would incorporate an area of economic attention for Japan and South Korea. Importantly, however, linking a portion of the proceeds of this joint venture to forced labor plaintiffs, either directly or through legacy projects paid for by proceeds, would give South Korea the chance to address an outstanding issue of considerable emotional importance.

Japanese Businesses

Such a solution would have three primary components: 1) Japanese businesses; 2) Korean businesses; and 3) Korean legislation. While each is important, the involvement of Japanese business is critical. As significant element in the enduring historical grievances is the Korean sentiment that Japan has never fully accepted responsibility for the use of forced labor before and during World War II. Specifically, parties to the forced labor litigation must participate in the proposed venture for it to be seen as legitimate in South Korean eyes.

South Korean Businesses

South Korean businesses must also join the effort. In one sense, South Korean businesses joining their Japanese counterparts would provide an example of cooperation that would help both Japan and South Korea win public support. Additionally, several prominent South Korean businesses benefited from Japanese payments following the 1965 treaty. They have contributed to the Korean Fund and would similarly need to contribute to this joint venture.

South Korean Litigation

The third element of the joint venture would be South Korean legislation. The primary purpose of this piece would be to define the full universe of potential plaintiffs and assist those who wish to file a claim. Second, legislation would organize and structure a procedure for determining eligibility. Similar efforts in the past have proven politically polarizing. A bill offered in the Korean National Assembly in 2017 envisioned the establishment of a foundation, with donations from both South Korean and Japanese sources, to compensate forced labor victims, along with broader efforts at bringing about reconciliation between South Korea and Japan. Notably, the bill established a leadership structure that would evaluate claims. The bill failed, however, on account of language. Opponents disagreed with the characterization of Japanese contributions as “donations” or “deposits,” rather than restitution and acceptance of responsibility. Here, the proposed legislation would similarly avoid such language, but importantly, the method of distributing resources to forced labor victims and the characterization of contributions are both distinct from the 2017 proposal. The contributions are not donations that are then distributed, they are rather investments into a shared venture, with distributions to forced labor victims taking place secondarily and as part of a shared business venture.

Importantly, this anticipated legislation is also needed to address the outstanding, unpaid court verdicts. While the Japanese parties have offered no intention of satisfying the awards, these verdicts remain legitimate in the eyes of the South Korean judiciary and, as such, are accruing interest. While the litigation as a whole is a divisive issue between Japan and South Korea, solutions for how to settle these awards are divisive among plaintiffs. If the current holdout parties eventually accept payment at a higher rate and/or payment inclusive of interest, the parties that previously accepted a lower amount may demand a recalculation. Concluded cases could thus unravel, at least with respect to public legitimacy. Alternatively, an effort to increase previous awards to match a current rate could impose added demands on the joint venture, further disincentivizing private participation.

Without a legislative solution to reconcile these competing interests and establish procedure and scope, the present proposal is unlikely to succeed. Japanese—and indeed South Korean—businesses need assurance of the full measure of what they are signing up for.

This last point underscores the need for all three components to work simultaneously. Without Japanese participation, South Korea will never fully embrace an effort at restitution. Without South Korean participation, Japan will be unable to overcome the inertia it already has against further engagement on historical grievances. And without South Korean legislation, a commitment to a joint venture tied monetarily to historical grievances is far too open-ended and unpredictable to win participation from either country’s private sector.

Challenges Ahead

The envisioned path forward will inevitably be challenging. For some South Koreans, no amount of Japanese reparations will ever make up for Korea’s past suffering. For its part, influential segments in Japan oppose what they view as an unreasonable demand for a perpetual apology.

Previous efforts at settling historical grievances were—understandably—focused on the past. The proposed solution, however, would be forward-looking in nature. It would also require concessions from South Korean and Japanese interests alike. Plaintiffs, advocacy groups, and the South Korean public must be willing to accept compensation with a degree of separation from Japanese parties and without an accompanying apology. For their part, Japanese parties must accept a link between their investment and the memory of forced labor. The unique circumstances of the Hitachi Zosen case offer a way forward. The separation of deposit from eventual distribution allowed Hitachi Zosen the space—even if rhetorical—to oppose the litigation while still, in a practical sense, concluding the case. The proposed joint venture would provide similar intentional ambiguity: funds officially tied to Japanese businesses assisting forced labor plaintiffs, but through a neutral initiative shared by the business communities of both sides.

Political Complications

Domestic politics in both countries may also present a challenge to the proposed venture. The cyclical swing of South Korean elections between conservative and liberal governments has made Japan a familiar target for quick political points. Conversely, Japanese politics is dominated by a single party: the Liberal Democratic Party (LDP). Both President Yoon and the LDP are currently facing scandals.

Counterintuitively, the domestic political climates in each country also present an opportunity. In Japan, the conservative LDP faction is also the element most likely to oppose further conciliatory measures toward Korea. With the main opponents to the Korean Fund weakened by scandal, a future Japanese prime minister may have more room for political maneuver. Meanwhile, President Yoon faces low approval ratings. But winning Japanese participation in the historical grievance issue may be seen as both a domestic and foreign policy victory.

Critical to the long-term health of the bilateral relationship, this joint venture seeks to end the recurring, disruptive nature of litigation. Winning widespread popular support among plaintiffs for an extrajudicial remedy would effectively eliminate relitigating the issue in the media with each court decision. Furthermore, it would avoid the uncertainty inherent in judicial opinions that span years of appeals, succeeding only in delaying a final disposition for aging Korean plaintiffs and encouraging fatigue in Japan. Indeed, the right leadership championing the right initiative can overcome a seemingly intractable issue that has plagued the Japan-Korea relationship, making historical grievances truly a thing of the past.