High hopes for Japan-South Korea tourism and trade as forced labour row set to ease

Businesses on both sides are optimistic, but analysts suggest that the lifting of export restrictions is unlikely to lead to a sudden trade boost
The easing of travel rules and the impact on tourism will be of greater importance to an uptick in business between the two nations, observers say

Japan

Julian Ryallin Tokyo

Published: 8:35am, 8 Mar 2023

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Business organisations in Japan and South Korea have welcomed a proposed plan to compensate labourers forced to work for Japanese corporations during the colonial era, and draw a line under an issue that has clouded trade relations between the two countries.

Analysts suggest, however, that the lifting of export restrictions imposed by Tokyo on Seoul in July 2019, in response to compensation claims going ahead against a number of Japanese companies, is unlikely to lead to a sudden trade bonanza.

Of far more importance to the uptick in business between the two nations, they said, is the easing of travel rules as the coronavirus pandemic fades, enabling unfettered two-way tourism again and boosting both nations’ “soft power” business opportunities, the observers said.

South Korean forced labour victim Yang Geum-deok (bottom middle), reacts after a rally against the South Korean government’s announcement of compensation for forced labours. Photo: AP

Under the plan announced by the government in South Korea on Monday, a state-backed foundation will be set up to accept donations from South Korean and Japanese companies that wish to contribute. The money will then be passed on as compensation to victims of forced labour.

The decision immediately proved controversial in South Korea, where the former labourers and their supporters demanded that the money come directly from the Japanese companies and be accompanied by a clear apology.

South Korea’s business community, however, said the government’s decision was “the best choice” and would not only build closer trade links with Japan but also with the United States.

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“We expect Korea-Japan relations to improve and bilateral economic cooperation to further expand,” a joint statement issued by six business lobbies stated.

The agreement “will greatly help to reinvigorate economic exchanges between the two countries that have suffered damage directly or indirectly, due to the deterioration in bilateral ties”, it added.

The South Korean government has also suspended a complaint filed with the World Trade Organization against export controls imposed by Japan on a number of industrial materials – fluorine polyamide, photoresist and hydrogen fluoride – critical to South Korea’s production of semiconductors and screens.

The Japan Business Federation has similarly welcomed the development, with chairman Masakazu Tokura describing the announcement as “a major step toward the restoration of soundness in Japan-South Korea relations” and describing Seoul as “an indispensable partner”.

02:53

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But Ryo Hinata-Yamaguchi, a project assistant professor at the Research Centre for Advanced Science and Technology at the University of Tokyo, said he did not think the changes would make much difference to trade.

“The restrictions meant South Korea was no longer on the ‘white list’ of preferred trade partners, but that never meant that they could not purchase these materials, only that they needed to complete a few more procedures,” he said.

Once companies on both sides had become used to the added level of bureaucracy, trade in the materials effectively returned to how it was before, he pointed out, although it did lead to South Korean firms diversifying their suppliers, which arguably hurt Japanese companies.

The larger impact came in the form of public anger in South Korea that manifested as a boycott of Japanese goods, Hinata-Yamaguchi said. This also affected services, particularly the tourism sector, although the pandemic played a much greater role in limiting two-way travel.

“At the outset, there was a lot of grass-roots opposition from South Korean society and very public boycotts of Japanese goods, but that has changed as people ran out of patience at not being able to drink Japanese beer, for example,” he said.

South Korea’s imports of Japanese beer in February stood at the highest in three years. Photo: Reuters

That assertion is backed up by the most recent import statistics, released on March 7, which showed that February imports of US$2 million of Japanese beer stood at the highest in three years, up by 315 per cent year on year.

Other Japanese brands are also enjoying a resurgence in South Korea, including clothing brands such as Uniqlo, shoe retailer ABC Mart and sporting clothes firms Asics and Descente. Boycotts also hurt brands such as Sony, Canon and Nintendo.

“An even bigger factor has been tourism, with numbers of Koreans visiting Japan skyrocketing since Japan opened its borders,” Hinata-Yamaguchi said.

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Stephen Nagy, a professor of international relations at Tokyo’s International Christian University, said the compensation agreement came against a backdrop of deteriorating security relations with China that could well spill over into the economic realm.

“The feeling in both Japan and South Korea is that an improvement in trade ties and a depoliticisation of this dispute is good for bilateral relations and the business communities really just want to go back to ‘business as usual’,” he said.

“Both governments are concerned at the political trends that are emerging in the region – most particularly in China – and this shows they are willing to take economic countermeasures that will cause some difficulties for both governments, but are needed to expand trade, rebalance the relationship and forge closer ties.”