Mediating Japan-Korea Trade and Investment Tensions

Abstract

This paper first describes the trade tensions between Korea and Japan that escalated from mid-2019. It assesses Korea’s prospects in a formal claim now brought before the World Trade Organization, noting difficulties with substantive law, but especially procedure given the general breakdown in the WTO’s usual two-tier inter-state dispute resolution process. The paper then outlines the possibility of Japan bringing claims under a 1965 Treaty that purported to settle claims resulting from Japan’s colonisation of Korea, or under bilateral or trilateral investment treaties, regarding Korean courts recently ordering Japanese companies to pay compensation to colonisation-era Korean labourers. Yet such claims also face procedural and/or substantive law difficulties. The paper further elaborates the possibility of affected Japanese companies instead or in parallel bringing investor-state dispute settlement claims against Korea, similarly alleging denial of justice in Korean court proceedings, under the two investment treaties. We conclude that these extra complications bolster the attraction of a formal mediation to bring both countries and the affected companies together in order to achieve an overall negotiated settlement.

Keywords: international economic law, foreign investment law, WTO, ISDS, dispute resolution, arbitration, mediation, Asian law

JEL Classification: K10, K30