South Korean middle school students march during a rally against Japan in Seoul, South Korea, Wednesday, Aug. 28, 2019. Japan's downgrading of South Korea's trade status took effect Wednesday, a decision that has already set off a series of reactions hurting bilateral relations. The notice reads: "Out, Economic retaliation and Japanese Prime Minister Shinzo Abe." (AP Photo/Ahn Youg-joon)
South Korean students march in a protest against Japan. A top Pentagon Asia official said that only rivals would benefit from the two countries' dispute © AP

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It was more like the aftermath of an election debate than the release of a World Trade Organization appellate ruling about the enthralling topic of anti-dumping duties on pneumatic valves.

The ruling in a dispute between Japan and South Korea came out at 5pm on Tuesday, Geneva time — midnight in Tokyo. Yet there was a squad of Japanese bureaucrats on standby to spin the news. Within minutes, both the foreign ministry and trade ministry had statements out, in English.

That normally takes a day or so, even when dealing with relatively simple matters, let alone a 149-page ruling on abstruse questions about a WTO panel’s terms of reference. But Tokyo’s message was very simple: Japan had won, South Korea was told to bring its duties into conformity with the rules.

The fuss over pneumatic valves — going well beyond the economic or political significance of the case — reflects the current level of tension between Japan and South Korea in every area of their relationship because of the deepening dispute over rulings by Korean courts, ordering Japanese companies to pay compensation for forced labour during the second world war.

Japan was bitterly disappointed to lose a separate WTO decision in April over Korea’s decision to ban seafood imports from areas near the Fukushima nuclear plant. On valves, Tokyo was determined to win and be seen to win.

South Korea did in due course make its own declaration of victory but on this occasion it was late in the spin war (many areas of the ruling went against Japan but ultimately the panel did find against the Korean duties, giving Tokyo the greater bragging rights).

It did not take long for Seoul to hit back, announcing a new WTO case against Japan’s imposition of export controls on three crucial chemicals used in Korea’s semiconductor industry. 

What is striking about the WTO cases is that for all the fuss and spin, they have proven to be a highly effective way for Korea and Japan to resolve their differences. Despite some moaning about odd decisions by the WTO judges, both sides have so far accepted all rulings, preventing these issues from becoming a permanent drag on relations.

There is no equivalent process to resolve the forced labour dispute. Japan is demanding mediation under the terms of a 1965 treaty, but Korea is not going down that route, and it is unlikely the International Court of Justice in The Hague would have jurisdiction. Thus any settlement will have to be bilateral and political, which is not in prospect for now.

It highlights what will be lost if there is no progress on WTO reform and the appellate body shuts down at the end of the year because the US will not appoint new judges. That would mean there is no way to reach a resolution on South Korea’s complaint about Japan’s export controls — another small but damaging breakdown in international co-operation.

EU-China ties fuel US business fears

FILE PHOTO: China's President Xi Jinping meets German Chancellor Angela Merkel at the Great Hall of the People in Beijing, China, May 24, 2018. REUTERS/Jason Lee/File Photo

As the trade war between Washington and Beijing deepens, will the EU — and others caught in the middle — be tempted to cut their own deals with China, leaving the US in the cold and its businesses worried that they are destined to lose market share and access in the largest Asian economy? writes Free Trade co-author James Politi.

Such is the scenario outlined by Noah Barkin in an article in the Berlin Policy Journal titled A vulnerable Germany finds it hard to say no to China, which recounted Angela Merkel’s recent visit to Beijing. 

The question is to what extent Germany will be alone in seeking warm ties with Beijing, outflanking the US, to protect itself from the global slowdown. Italy would be a prime candidate to follow in its footsteps, after Rome’s decision to join the China-led Belt and Road Initiative this year.

A crackdown in Hong Kong risks jeopardising any rapprochement between European countries and China. It is no accident that Ms Merkel called on “rights and freedom” in the city-state to be “safeguarded”, and that authorities should do “everything possible to avoid violence”. 

EU governments will be wary of incurring Washington’s wrath. And anyway, many in Brussels have become convinced that a tougher stance towards China is warranted.

But they might feel they have no option but to pursue a policy of engagement if conditions in the global economy worsen.

Chart choice

Median household income in the US has rebounded after the financial crisis but is not much above its level two decades ago.

The number: 60 per cent

The share of Americans who believe a recession in the next year is very or somewhat likely, according to a WaPo/ABC poll

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