Disputed Territory

A territorial dispute between South Korea and Japan may stall their trade talks, but the global free-trade march continues.

Territorial disputes between Japan and Korea are nothing new—for centuries, they’ve fought over various islets and the Korean peninsula itself. But in recent weeks, they’ve taken a somewhat novel turn: Some Japanese netizens are laying claim to one of South Korea’s prized properties—a 63.8 million-views-and-counting viral hit called “Gangnam Style.”

Now, quibbling over a K-pop smash may seem trivial. But as a recent editorial in The Korea Times pointed out, it’s perhaps a small manifestation of the two nations’ far more significant dispute over islets in Korea’s East Sea, otherwise known as the Sea of Japan—a dispute that may further stall Korea and Japan’s free-trade negotiations.

The islets have been disputed for decades. South Korea controls entry, and the main islet—Dokdo if you’re Korean, Takeshima if you’re Japanese, Liancourt Rocks if you’re viewing a western map—is home to Korean police officers, coast guard, government workers and civilians. But Japan has long staked a territorial claim, and 88 Japanese people claim domicile under Japanese law.

The latest flare-up began when South Korean President Lee Myung-Bak visited Dokdo/Takeshima on August 10—a visit he said was meant to pressure Japan to atone for atrocities committed during its 1910-1945 colonial rule over Korea. Japanese Prime Minister Yoshihiko Noda responded swiftly and sternly, calling the visit “extremely deplorable.” Lee pressed further on August 15, the anniversary of Korea’s liberation, saying Japanese Emperor Akihito would be barred from Korea unless he apologized “from the bottom of his heart” for Japan’s colonial actions. An outraged Noda demanded a retraction and apology and, while he was at it, demanded Korea end “illegal occupation” of the islet.

Two days later, Noda sent Lee a letter further expressing his disappointment, pledging to take the dispute to the International Court of Justice and urging Lee to “squarely accept” his petition (necessary for the ICJ to hear Japan’s argument). Lee kept mum for a week—he had no intention of accepting, but even sending a rebuttal would mean acknowledging a territorial dispute, which Korea steadfastly refuses to do. Thus, last Friday, Lee simply returned the letter, claiming the Japanese government erred by publishing its contents. He also pointed out that the letter was incorrect because it mentioned Lee’s visit to “Takeshima,” when he in fact visited “Dokdo.” South Korea’s Ambassador to Japan, Shin Kak-soo, tried to personally return the letter to Japan’s foreign ministry, but he was barred entry, and the war of words continued.

No doubt we haven’t heard the last. The two nations are officially at peace, but longstanding grievances run deep culturally on both sides. Both countries also hold elections before yearend, and each regularly uses rhetoric against the other as campaign fodder. Which may be behind things like Japan’s veiled threat to cancel the nations’ currency swap agreement and Korea’s aforementioned balking over resuming FTA talks, which stalled out in 2004. It seems safe to assume negotiations for an FTA between Korea, Japan and China, announced in May, are also now dormant—especially with China and Japan locked in a similar dispute.

Yet there’s an upside—Korea’s free-trade talks with China have accelerated since the Dokdo/Takeshima spat escalated. Last week, they agreed to eliminate tariffs on “sensitive items” within 10 years of the pact’s taking effect, and talks continue September 10. In addition to defining “sensitive items,” trade negotiators plan to tackle intellectual property and government involvement (China’s state-run enterprises are a notorious stumbling block in its free trade efforts).

Which underscores a theme we’ve remarked before—despite high-profile instances of protectionism like stalled Korean/Japanese negotiations, French allegations of supposedly unfair competition from Korean automakers or the US and China’s tariff tiffs, on balance, global trade keeps getting freer. Trans-Pacific Partnership talks are progressing, India and ASEAN are negotiating a free-trade deal on services, and the EU and Canada are wrapping up a deal. Productive free-trade talks may not grab headlines like heated disputes, but the global race toward zero protectionism is alive and well.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.