Nippon Steel Corp. on Friday filed an appeal against the seizure of its assets in South Korea that were earmarked for liquidation to compensate wartime laborers, in a move sure to put the two nations on a diplomatic collision course yet again.

The Daegu District Court’s Pohang branch’s decision on seizing the assets owned by the Japanese steel-maker, including around 81,000 shares it had acquired through its joint venture with the Korean firm Posco, went into effect Tuesday. The court decision would have been finalized, with the process moving on to the next step where the assets would be sold, if the Japanese firm hadn’t filed an appeal within a week from Tuesday.

The court confirmed it would hear the complaint and will decide on whether to accept the appeal or not.

The assets were seized last year following a decision by the South Korean Supreme Court in 2018 ordering the Japanese steel-maker, then Nippon Steel & Sumitomo Metal Corp., to provide compensation of about ¥40 million to four Koreans who had said they were forced to work against their will for the firm’s precursor, Japan Iron & Steel Co., during Japan’s colonial rule of the Korean Peninsula.

The latest ruling represents a further step toward liquidating the company assets for cash compensation, although because of the complexity of the process it is unlikely to proceed swiftly even after the decision.

Still, Tokyo regards the liquidation as subverting a 1965 economic cooperation pact that was supposed to have resolved all compensation issues arising from the nation’s 1910-45 colonial rule.

The Japanese government fears the judicial action will further inflame shaky bilateral relations and could set a dangerous precedent, possibly reigniting compensation issues from World War II with other countries.

Japan is reportedly considering countermeasures, including tightening visa restrictions for diplomats.

“We need to manage the situation well to avoid us taking action, but based on what’s going on, there’s a possibility that we may have no choice,” Finance Minister Taro Aso said Tuesday.

In a news conference in the morning the same day, Chief Cabinet Secretary Yoshihide Suga criticized the ruling from 2018 and the subsequent legal procedure as being against international law, and said Japan would consider “a variety of options” to protect Japanese companies.

“If the assets are liquidated, that’ll be a grievous matter that we must avoid,” Suga said. “We’ve conveyed this point to South Korea repeatedly and will continue to urge South Korea to resolve the issue swiftly.”

A group of conservative Liberal Democratic Party lawmakers visited the Prime Minister’s Office this week to urge the government to impose sanctions on South Korea if it went ahead with the liquidation. Deputy Chief Cabinet Secretary Akihiro Nishimura told the lawmakers the government would take “specific actions without hesitation.”

Nippon Steel issued a statement following Tuesday’s court decision, saying the issue of wartime labor was already resolved and the company would “respond appropriately” based on diplomatic negotiations between the two countries.

The 2018 South Korean Supreme Court decision on wartime labor has been cited as underlying the recent deterioration in relations between the two Asian neighbors, a worrisome factor for the United States, which sees positive ties between the two regional allies as critical to countering China, Russia and North Korea.

Although Tokyo has denied accusations of a political motive, the trade ministry toughened export control regulations on certain chemicals that were critical for South Korea’s manufacturing industry last summer.

In return, Seoul threatened to pull the plug on the General Security of Military Information Agreement (GSOMIA), a military-intelligence sharing pact with Tokyo that is key for tracking North Korean missile activities. South Korea backed away from the threat at the last minute, but the pact could still be scrapped if either party decides not to renew it by Aug. 24.

It would be difficult for South Korea to nullify the pact now, or at least before Japan launches countermeasures, said Yuki Asaba, a professor of Korean studies at Doshisha University in Kyoto.

“I don’t believe South Korea would jettison the pact at this time, but it’s natural that it would do something equivalent to (Japanese countermeasures) economically and it would bring up GSOMIA if it wants to do something in the area of national security cooperation and drag the United States into this,” he said.

The compensation issue dredges up history the two nations have been unable to fully reconcile 75 years after the end of World War II.

Tokyo has insisted that the 1965 pact, which included provision for restoring diplomatic relations after the war, addressed compensation issues including those related to wartime laborers. Through the pact, Tokyo extended massive “economic cooperation” funds to the South Korean government, and Seoul was in return obliged to pay any compensation money to individual wartime laborers using the funds.

But South Korean President Moon Jae-in has asserted the pact did not cover former wartime laborers’ individual rights to demand “consolation money” for their suffering under colonial rule. Many of them say they were forced to work in harsh conditions for Japan and have demanded direct compensation from the Japanese government separately.

There are no realistic scenarios to avoid a direct confrontation between Abe and Moon, Asaba said. Unless they make a decision to break the stalemate and draw up a compromise, the issue will take bilateral relations from bad to worse.

“Both leaders are concerned about domestic sentiment (toward each country) and they both are unable to make an easy compromise,” Asaba said.

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