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Hello from Seoul where, like in many big Asian cities, anxiety is rising over the spread of the deadly coronavirus from China. Across the region officials are tightening borders and expanding quarantines as both the death toll in China, and the number of cases discovered in other countries, continues to climb.
While investors and policymakers continue to assess the fallout from this new virus on trade and the economy, today Trade Secrets is turning its attention to a historic impasse which last year spiralled quickly out of control, threatening not only global tech supply chains but also the region’s security alliances: the dispute between South Korea and Japan.
While Tokyo and Seoul now appear to be trying to kick the issue down the road, we see no guarantee that tensions between these two critical technology exporters won’t flare up again in 2020. Amid the uncertainty, we back calls for clarity.
Our Policy Watch examines the plan to allow top scientists and mathematicians into the UK after Brexit, while our chart of the day looks at US steel tariffs on a range of countries.
Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to trade.secrets@ft.com, or email me at edward.white@ft.com.
Wartime legal claims lie behind disputes
Talks between Shinzo Abe and Moon Jae-in and subsequent meetings between Japan and South Korea are being cited as a sign that relations have thawed © Kim Kyung-Hoon/Bloomberg
After a historic meeting with Japanese prime minister Takeo Fukuda in 1978, China’s then-vice premier Deng Xiaoping delivered a characteristic aphorism on why the two sides should “set aside” their seemingly intractable territorial disputes and instead “pursue joint development”:
“If our generation does not have enough wisdom to resolve this issue, the next generation will have more wisdom, and I am sure that they can find a way acceptable to both sides to settle this issue.”
In 2019, legal claims for justice by South Korean victims of Japanese wartime servitude led to Tokyo threatening to restrict exports needed by Korean tech giants including Samsung, and South Korea in turn threatening to quit an intelligence sharing pact with Japan. Following the troubles, one trade expert suggested to Trade Secrets privately that Tokyo and Seoul are now simply trying to follow Deng’s path.
South Korean president Moon Jae-in and Japanese prime minister Shinzo Abe talked briefly in Chengdu, south-west China, last year, and there were subsequent meetings between the countries’ foreign ministers and trade delegations. All are being cited as a sign that relations have thawed and progress is being made.
But the problem for both governments is that the underlying legal claims that sparked last year’s fallout have not gone away: in late 2018, South Korean courts awarded damages against Japanese companies for forced labour, and now the courts are edging closer to having to liquidate the assets of Japanese companies in order to pay the victims.
The core issue is that Tokyo has warned that any liquidation will spark further retaliation and Seoul has insisted that it cannot and will not intervene in the court process.
At his annual press conference at the presidential Blue House in Seoul earlier this month, Mr Moon suggested Tokyo could be the one to think up a solution “acceptable to the victims”. Japanese chief cabinet secretary Yoshihide Suga swiftly rebuked the idea of shifting responsibility to Tokyo.
So, where does that leave us?
In terms of timeframes, there is no clear deadline for the court liquidation process to commence. And assuming it does happen, we don’t know exactly how Tokyo will respond.
Analysts watching the dispute are mostly of the view that any sort of tit-for-tat escalation — which we saw last year — will be avoided and ultimately, while threats might again be traded, economic fallout will be limited.
A counter argument might be made that very few, if any, of those same analysts predicted that the dispute would lead to Tokyo targeting the manufacturing of South Korea’s most important export — memory chips.
As one diplomat in Seoul, who asked not to be named, said: “If the liquidation happens, things will certainly flare up.”
Rather than leave the issue for another generation to pick up, Yasuyuki Todo, a professor at Tokyo’s Waseda University, has urged an end to the opaqueness around the application of trade restrictions due to national security concerns.
This is pertinent in the Japan-South Korea dispute, because Tokyo has cited a breakdown in trust and national security concerns to justify its export curbs. But it is also relevant in the US crackdown on Chinese telecoms group Huawei, and, believe it or not, European car imports.
Current WTO definitions around this can be too loosely interpreted, Mr Todo argues, so new rules are needed to provide clarity around which products can be targeted.
“A first step might be to incorporate these rules into future regional free trade agreements . . . Japan should be encouraged to play a proactive role in setting up these new trade rules,” he said in an article for Australia National University’s East Asia Forum.
In the Trump-era where weaponising trade is no longer taboo — and with Tokyo and Seoul apparently unwilling to make concessions and instead trying to follow Deng’s path of handing the problem to another generation — Mr Todo’s call for a little clarity over the rules of the game seems a fine one.
Charted waters
The US Senate’s ratification of the USMCA trade deal last week lifted four years of nerve-racking uncertainty for Mexico. But eliminating US president Donald Trump’s threats to slap tariffs on Mexico or introduce a revamped trade deal, is unlikely to be enough to reignite investments, writes Jude Webber.
Policy watch
At 11pm on January 31, Britain will leave the EU.
But while it will seem to many that the UK is shutting one door, Boris Johnson is opening another — by creating an uncapped “Global Talent” route into the country for the world’s top scientists and mathematicians.
Mr Johnson said he wanted to send a message “that the UK is open to the most talented minds in the world and stands ready to support them to turn their ideas into reality”. Dominic Cummings, Mr Johnson’s principal adviser, recently advertised for top scientists and mathematicians, including “weirdos”, to apply for jobs in Number 10.
In December, Priti Patel, home secretary, said Britain would need “an immigration system that attracts the sharpest minds from around the globe” to ensure it can be at “the forefront of innovation”.
But many businesses question the government’s focus on attracting “brightest and best” applicants, arguing that many of the UK’s current labour market problems relate to shortages of workers willing to undertake some relatively low-skilled roles. They have been worried that a new system would make it much harder to employ EU workers in low-paid sectors such as food processing, construction and social care.
On Tuesday, the government will receive a report by its Migration Advisory Committee to advise on a new “Australian-style points based” immigration system, intended to target skills shortages in the economy and to favour skilled workers.
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Source: Economy - ft.com
