Failure of the Republic of Korea to Comply with Obligations Regarding Arbitration Under the Agreement on the Settlement of Problems Concerning Property and Claims and on Economic Co-operation Between Japan and the Republic of Korea

by Taro Kono

Failure of the Republic of Korea to comply with obligations regarding arbitration under the Agreement on the Settlement of Problems concerning Property and Claims and on Economic Co-operation between Japan and the Republic of Korea

(Statement by Foreign Minister Taro Kono)

1. Japan and the Republic of Korea have built a close, friendly and cooperative relationship based on the Treaty on Basic Relations between Japan and the Republic of Korea and other relevant agreements that the two countries concluded when they normalized their relationship in 1965. The Agreement on the Settlement of Problems concerning Property and Claims and on Economic Co-operation between Japan and the Republic of Korea (the “Agreement”), which is the core of these agreements, stipulates that Japan shall supply to the Republic of Korea 300 million USD in grants and extend loans up to 200 million USD (Article I), and that problems concerning property, rights and interests of the two Contracting Parties and their nationals (including juridical persons), as well as concerning claims between the Contracting Parties and their nationals, are “settled completely and finally,” and no contention shall be made thereof (Article II). As such, the Agreement has provided the basis for the bilateral relationship up until now.
2. In spite of the above, a series of judgments of the Supreme Court of the Republic of Korea last year ordered respondent Japanese companies, inter alia, to pay compensation to the plaintiffs. These decisions are extremely regrettable and totally unacceptable. The decisions clearly violate Article II of the Agreement and inflict unjustifiable damage and costs on the said Japanese companies. Above all, the decisions completely overthrow the legal foundation of the friendly and cooperative relationship that Japan and the Republic of Korea have developed since the normalization of diplomatic relations in 1965.
3. Japan has long placed an emphasis on the rule of law in the international community. Consistent with its strong belief in the importance for States, irrespective of domestic circumstances, to abide by their commitments under international law, the Government of Japan, on 9 January 2019, requested diplomatic consultations with the Government of the Republic of Korea under the Agreement. This was the initial step to settle the issue of breaches of international law by the Republic of Korea due to the judgments of the Supreme Court of the Republic of Korea rendered last year, as well as related judgments and proceedings.
4. However, the Government of the Republic of Korea failed to respond to the request for diplomatic consultations, taking no action as the Korean claimants took steps to attach assets of the respondent Japanese companies in satisfaction of the judgments of the Korean Supreme Court. Given that failure by the Government of the Republic of Korea, the Government of Japan transmitted a Notification and Statement of Claim to the Republic of Korea on 20 May 2019 (“Notification”). By this Notification, the Government of Japan invoked the arbitration clause in the Agreement, referring the dispute to arbitration in accordance with Article III.2 of the Agreement; and Japan has proceeded with the arbitration process up to the present. The Government of the Republic of Korea, however, did not follow the procedures set forth in Article III of the Agreement and failed to comply with its obligation not only to appoint an arbitrator, but also to choose a third country, the government of which is to appoint an arbitrator for the Contracting Party, within the period provided for in the Agreement.
5. Japan deeply regrets that, as a consequence, an arbitration board under the Agreement referred to on 20 May could not be constituted.
6. The repeated failures of the Republic of Korea to take the steps toward the constitution of the arbitration board, which is the agreed dispute settlement procedure provided under the Agreement, constitute further breaches of the Agreement, in addition to the breaches already caused by the series of judgments of the Supreme Court of the Republic of Korea last year, as well as related judgments and proceedings.
7. Given the severe situation surrounding the Japan-Republic of Korea relationship caused by the Republic of Korea side, including the aforementioned, the Government of Japan will be taking necessary measures against the Republic of Korea.
8. The settlement of this dispute requires the Republic of Korea to remedy its accumulated breaches of international law. Japan renews its request for the Republic of Korea to take concrete actions for that purpose immediately.

(Reference) Agreement on the Settlement of Problem Concerning Property and Claim and on the Economic Co-operation between Japan and the Republic of Korea (excerpt)

Article II

1 The Contracting Parties confirm that problem concerning property, rights, and interests of the two Contracting Parties and their nationals (including juridical persons) and concerning claims between the Contracting Parties and their nationals, including those provided for in Article IV, paragraph (a) of the Treaty of Peace with Japan signed at the city of San Francisco on September 8, 1951, is settled completely and finally.

. . .

3 Subject to the provisions of paragraph 2 above, no contention shall be made with respect to the measures on property, rights and interests of either Contracting Party and its nationals which are within the jurisdiction of the other Contracting Party on the date of the signing of the present Agreement, or with respect to any claims of either Contracting Party and its nationals against the other Contracting Party and its nationals arising from the causes which occurred on or before the said date.

Article III

1 Any dispute between the Contracting Parties concerning the interpretation and implementation of the present Agreement shall be settled, first of all, through diplomatic channels.

2 Any dispute which fails to be settled under the provision of paragraph 1 shall be referred for decision to an arbitration board composed of three arbitrators, one to be appointed by the Government of each Contracting Party within a period of thirty days from the date of receipt by the Government of either Contracting Party from the Government of the other of a note requesting arbitration of the dispute, and the third arbitrator to be agreed upon by the two arbitrators so chosen within a further period of thirty days or the third arbitrator to be appointed by the government of a third country agreed upon within such further period by the two arbitrators, provided that the third arbitrator shall not be a national of either Contracting Party.

3 If, within the periods respectively referred to, the Government of either Contracting Party fails to appoint an arbitrator, or the third arbitrator or a third country is not agreed upon, the arbitration board shall be composed of the two arbitrators to be designated by each of the governments of the two countries respectively chosen by the Governments of the Contracting Parties within a period of thirty days and the third arbitrator to be designated by the government of a third country to be determined upon consultation between the governments so chosen.

4 The Governments of the Contracting Parties shall abide by any award made by the arbitration board under the provisions of the present Article.

(Reference) Background and Position of the Government of Japan Concerning the issue of former civilian workers from the Korean Peninsula (FACT SHEET) (English (PDF)/ Japanese (PDF)