Is Japan weaponising trade against South Korea?

Asia World

Author: Aurelia George Mulgan, UNSW Canberra

Japan has long used economic statecraft to bolster its standing in the international community and to build constructive relations with other states. In the 1990s, it became a foreign aid superpower as the largest donor of overseas aid of any nation. It now considers itself a leader in promoting free trade agreements (FTAs) — particularly in the Indo-Pacific region — not only to enhance regional economic growth but also to achieve geopolitical and strategic objectives.

People attend a rally held to denounce Japanese Prime Minister Shinzo Abe and his regime in front of the Japanese Embassy in Seoul, South Korea, 10 August 2019. Japan recently dropped South Korea from its whitelist of favoured trade partners in apparent reprisal for Seoul's handling of the compensation issue related to Koreans forced to toil at Japanese factories and mines during World War II. Korean characters on blue signs read, "Let's abrogate the General Security of Military Information Agreement (GSOMIA)", which is a pact with Japan on sharing military information (Photo: Reuters/Lee Jae-Won).

People attend a rally held to denounce Japanese Prime Minister Shinzo Abe and his regime in front of the Japanese Embassy in Seoul, South Korea, 10 August 2019. Japan recently dropped South Korea from its whitelist of favoured trade partners in apparent reprisal for Seoul's handling of the compensation issue related to Koreans forced to toil at Japanese factories and mines during World War II. Korean characters on blue signs read, "Let's abrogate the General Security of Military Information Agreement (GSOMIA)", which is a pact with Japan on sharing military information (Photo: Reuters/Lee Jae-Won).

Economic statecraft has been a highly valuable adjunct to diplomacy given Japan’s inability to deploy a full suite of security policy instruments, including military force.

Recent developments in Japan–South Korea relations, however, suggest that Japan is now practising geo-economics as a form of power politics against a long-standing security, trade and economic partner: South Korea. Until now, Japan has been able to justify punitive economic measures against particular countries on the grounds that they represented a major threat to world peace such as North Korea and Russia.

In early July, the Abe administration imposed tighter controls on exports of three chemicals used by South Korean companies to produce semiconductors and smartphone and TV displays — hugely important export items for South Korea. Japan then moved to inflict even greater economic pain on South Korea in August by removing it from a ‘whitelist’ of 27 preferential trading partners that can import Japanese goods without added procedures and approvals.

The question these actions raise is whether Japan has adopted a policy of weaponising trade against South Korea.

Despite justifying its actions on security grounds and periodically authorising some exports, the timing and nature of Japan’s punitive policies suggest that its real intention has been to to retaliate for rulings by the South Korean Supreme Court against Japanese companies for forced labour during the Second World War and the demand for compensation from these companies, including the possibility that their assets in South Korea might be seized and liquidated.

When Japan imposed strictures on exports to South Korea in early July, Prime Minister Shinzo Abe triumphantly announced that the tighter export restrictions would ‘make it impossible for the South Korean electronic equipment industry … to sustain itself’. In the last week, Japan has since added new items to the list of its export controls.

The Abe administration’s handling of the dispute with South Korea appears to represent a new development in the conduct of Japan’s international economic relations and to reflect a posture that is driven primarily by ideological nationalism grounded in war history denial. It also appears to be aimed at a domestic audience that is growing hostile to South Korea for many of the same reasons and typifies Abe’s political technique of both mobilising and responding to rising nationalism to generate political support to buoy his administration.

President Trump has legitimised economic coercion as a device to put pressure on friends and foes alike, raising the question whether Japan is now copying from the Trump playbook.

Institutionally, the Abe administration’s South Korea policy also reflects the primacy of Kantei-driven foreign policy, which has largely displaced Japan’s traditional Ministry of Foreign Affairs (MOFA)-led diplomacy. MOFA has lost influence over the prime minister who now takes responsibility for all major diplomatic initiatives. This has resulted in the adoption of the much tougher line on South Korea. MOFA was not consulted about the imposition of stricter export controls on South Korea in late August and the valiant efforts of parliamentarians on both sides in past years to resolve disputes and smooth bilateral relations are unlikely to be repeated.

Unlike the recent Japan–US trade deal, Abe has not been able to portray his handling of the Japan–South Korea dispute as ‘win–win’. Indeed, it has been pure zero or negative sum given Japan’s refusal to give ground on any of the issues at stake. The Abe government’s actions are counterproductive for both Japanese and South Korean interests. It has elicited retaliation in kind — not concessions — from the Moon administration, which has reacted by also removing Japan from South Korea’s ‘whitelist’ of trade partners. Pushing further, the Moon administration announced that it would abrogate the 2016 bilateral intelligence-sharing agreement (GSOMIA).

The destruction of GSOMIA will hinder joint South Korea–US and Japan–South Korea military operations. As Japan’s former Special Ambassador to South Korea Masatoshi Muto argues, if there is no military agreement between Japan and South Korea, joint operations involving Japan, the United States and South Korea will not formally be possible. GSOMIA is effectively a bridging device between two of the spokes (Japan and South Korea) of the US alliance system in northeast Asia.

There are no signs that the uncompromising line of the Abe administration in dealing with historical issues with South Korea will change any time soon, in spite of the 23 November deadline for the termination of GSOMIA. This line pays scant regard to the negative consequences for Japan’s own economic and security interests, including an emboldened North Korea and the plunge in Japanese exports to South Korea in response to consumer boycotts.

The Abe administration has not reacted positively to the South Korean government’s position that it would rethink the pending termination of GSOMIA if Japan formally lifted its economic sanctions. Indeed, the Abe administration has refused to link the two, apparently attaching far greater importance to the requisitioned workers dispute at the core of its displeasure with South Korea than either GSOMIA or South Korea’s export controls.

The Abe administration’s actions demonstrate just how far it is prepared to put at risk Japan’s shared security interests with the United States on issues where it gives precedence to advancing goals related to the legacy of its defeat in the Second World War. On these issues, Japan risks becoming an unreliable ally.

Aurelia George Mulgan is Professor at the School of Humanities and Social Sciences, the University of New South Wales, Canberra.

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