Just in the nick of time, South Korea has saved a bilateral intelligence-sharing pact with Japan. On Nov. 22, Seoul decided to provisionally extend the pact — mere hours before it expired — that it had planned to exit in retaliation for export restrictions that Tokyo imposed in response to Seoul's demands for greater compensation for the Korean wartime victims of imperial Japan. In addition, Seoul announced that it would pause its related challenge against Japan at the World Trade Organization. But even if the two have managed to halt the escalation in their miniature trade war, Seoul and Tokyo still have much work to do to truly bury the hatchet.
The Price of Backing Down
South Korea's move is a welcome development for the United States as it strives to maintain cooperation between two critical regional allies. The announcement effectively decouples the trade war from strategic issues — something Washington has pushed very hard for in recent weeks. In this, the United States may have used its demand for a massive increase in the amount that countries like South Korea pay for U.S. troop deployments as leverage against Seoul. And while a trilateral U.S. intel-sharing pact involving both countries would have facilitated the continued flow of information, direct intelligence sharing between Tokyo and Seoul is more efficient — to say nothing of the conspicuous blow to the U.S. Pacific alliance structure that the deal's collapse would have entailed. Moreover, South Korea's announcement gives breathing room for Seoul and Tokyo to explore a compromise that could include a public stand-down by both countries or a less visible means of easing trade pressure.
Still, any deal would face major domestic hurdles given the support for a confrontational stance in both countries. For South Korea, compromise would require something to change in Seoul's vociferous push for wartime compensation that has pleased President Moon Jae In's progressive base. With April 2020 legislative elections approaching, backing down could jeopardize his allies' prospects. Moon could consider a strategy of focusing any political furor from a compromise on himself personally, accepting the damage in the final stretch of his final term — although that could jeopardize his ability to control his own parliamentary allies. For Japan, too, climbing down would also run counter to public opinion, meaning it would likely only do so if South Korea first backed off somewhat from its demands for more wartime compensation. Whatever the case, Japanese Prime Minister Shinzo Abe's government is in a far more solid political position than Moon's administration in Seoul.
So far, the economic costs of their own trade war have not severely impacted the two economies, which are both suffering much more from the broader global slowdown and U.S.-China trade war. Japan's trade with South Korea is an important but not critical part of its overall export profile, but it may calculate that it needs to boost exports wherever it can as it enters 2020 amid low growth. South Korea may determine as well that the prospect of a continued Japanese squeeze on its vital semiconductor sector, which would bite harder in 2020 amid a depletion of stockpiles and the potential for a rebound in demand, may make such political costs acceptable. Neither side, however, is necessarily at the point of compromise yet.
A Truce With Staying Power?
It is unclear, however, how far the East Asian neighbors' truce can go, as South Korea has made it clear it can still exit the intel pact at any time and resume WTO pressure. Japan, meanwhile, has said its position on trade restrictions and wartime compensation remains unchanged, emphasizing that it sees no connection between the intelligence pact and trade issues.
Ultimately, the coming weeks will be critical, as the two countries will hold working-level talks on export controls for the first time in three years. If all goes well, this could pave the way for a Moon-Abe summit next month, potentially at China's trilateral gathering in Chengdu. The countries, however, still have much to iron out — and much room for another setback.
