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Japan, S. Korea weigh creation of fund amid spat over wartime labor

TOKYO (Kyodo) -- Japan and South Korea have begun exploring ways to resolve their months-long spat over compensation for wartime labor, with the creation of a fund to provide money for economic cooperation as an option, sources familiar with bilateral ties said Monday.

The idea being floated is for the government and companies in South Korea to set up a fund. Japanese companies will chip in money so it can be used under the name of economic cooperation, not as compensation for wartime labor, the sources said.

Such an agreement would allow Japanese firms to provide money to the South Korean side without contradicting Tokyo's stance that the issue of compensation was settled finally and completely under a 1965 bilateral accord.

The Japanese government does not plan to make monetary contributions, according to the sources.

Since a series of South Korean court rulings ordered Japanese companies last year to compensate for wartime forced labor during the 1910-1945 colonial rule of the Korean Peninsula, the Asian neighbors have failed to bridge their gap and let their relationship sharply worsen. The dispute has spread to trade and security issues in recent months.

When Japan and South Korea reached the 1965 agreement, Tokyo provided Seoul with $500 million for "economic cooperation." Prime Minister Shinzo Abe has been repeatedly urging Seoul to follow through on the accord that paved the way for the normalization of diplomatic relations.

The South Korean top court said the right of victims of forced mobilization under Japan's "illegal" colonial rule to seek compensation was not terminated by the accord.

Abe and South Korean Prime Minister Lee Nak Yon agreed last week in Tokyo to continue dialogue despite a sharp deterioration in bilateral ties that has prevented a summit between the Japanese leader and President Moon Jae In for more than a year.

Japan and South Korea are expected to step up talks on breaking the current impasse in search of an agreeable plan, although a high hurdle lies ahead as they need to bridge the wide gap over the compensation issue.

Tokyo is unlikely to budge over its conventional stance that it does not bear responsibility to pay compensation based on the 1965 accord, while Seoul wants to secure de-facto compensation.

In June, Japan rejected South Korea's proposal to set up a fund with the participation of the two countries' firms and compensate the victims of wartime forced labor. This time, Japan made a proposal to create the envisaged economic cooperation fund, according to the sources.

Takeo Kawamura, secretary general of a cross-party parliamentary league that promotes Japan-South Korea friendship, has indicated that the two nations need to come up with new ideas.

"Mr. Lee is saying 'Let's put ideas out,'" Kawamura told a TV program on Thursday. He held talks in late October with the South Korean prime minister.

"Why don't we talk about how to provide funding for the building of future Japan-South Korea ties, instead of compensation?" said Kawamura, a lawmaker from the Liberal Democratic Party.

Shigeki Takizaki, director general of the Asian and Oceanian Affairs Bureau at the Foreign Ministry and his South Korean counterpart Kim Jung Han are in charge of coordinating bilateral efforts and hammering out the details, the sources said.

Lawyers for the South Korean plaintiffs have already seized the assets of the Japanese companies -- Nippon Steel Corp. and Mitsubishi Heavy Industries Ltd. -- for their failure to comply with the court orders and are now seeking to liquidate them.

"South Korea is responsible for resolving the issue but we can also come up with ideas. We're in a situation where both Japan and South Korea are looking for an exit," a senior Japanese government official said.

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